-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CKLTESqZOFiBwpemYWOg/WUV5FsgQc4xYPJQRLuTE3b95EaIyre2IB3NM+0ELmHg jCXbrbZNQnPunFpj5dljlA== 0001017062-98-000514.txt : 19980312 0001017062-98-000514.hdr.sgml : 19980312 ACCESSION NUMBER: 0001017062-98-000514 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980311 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD PACIFIC CORP /DE/ CENTRAL INDEX KEY: 0000878560 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 330475989 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10959 FILM NUMBER: 98563861 BUSINESS ADDRESS: STREET 1: 1565 W MACARTHUR BLVD CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7146684300 MAIL ADDRESS: STREET 1: 1565 W MACARTHUR BLVD CITY: COSTA MESA STATE: CA ZIP: 92626 10-K 1 FORM 10-K FOR FISCAL YEAR ENDING 12/31/97 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from N/A to ------------------- ---------------------- Commission file number 1-10959 STANDARD PACIFIC CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 33-0475989 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1565 W. MACARTHUR BLVD., 92626 COSTA MESA, CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Registrant's telephone number, including area code (714) 668-4300 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON STOCK, $.01 PAR VALUE (AND ACCOMPANYING PREFERRED SHARE NEW YORK STOCK EXCHANGE AND PURCHASE RIGHTS) PACIFIC STOCK EXCHANGE 10 1/2% SENIOR NOTES DUE 2000 NEW YORK STOCK EXCHANGE 8 1/2% SENIOR NOTES DUE 2007 NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: None INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO . --- --- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THE FORM 10-K. [_] As of March 1, 1998, the aggregate market value of voting stock held by non- affiliates of the registrant was $438,231,139. Documents incorporated by reference: Portions of the Company's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company's 1998 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. As of March 1, 1998, there were 29,720,781 shares of common stock outstanding. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- STANDARD PACIFIC CORP. PART I ITEM 1. BUSINESS Standard Pacific Corp. ("the Company") operates primarily as a geographically diversified builder of single-family homes for use as primary residences with operations throughout the major metropolitan markets in California and Texas. For the year ended December 31, 1997, approximately 79 percent and 21 percent of the Company's home deliveries (including unconsolidated joint ventures) were in California and Texas, respectively. The Company was incorporated in the State of Delaware in 1991. Through its predecessors, Standard Pacific Corp. commenced its homebuilding operations in 1966 with a single tract of land in Orange County, California. As used herein, "Company" refers to Standard Pacific Corp. and its predecessors. STRATEGY The Company believes that its long history of building high quality homes in California and Texas and its conservative operating strategy have enabled the Company to successfully weather cyclical downturns and position the Company to capitalize on the improving California market. The main elements of the Company's strategy include: Focus on Broad Move-Up Market. The Company concentrates on the construction of single-family homes for use as primary residences by move-up buyers. The Company believes that the market for primary residences is more resistant to economic downturns than the market for second or vacation homes. The average selling price of the Company's homes for the year ended December 31, 1997 was approximately $307,000. Currently, the Company expects to concentrate its efforts on acquiring land that is suitable for the construction and sale of homes generally in the price range of $150,000 to $400,000, which represents a broad market segment in the Company's market areas. The Company also constructs and sells homes in the $400,000 to $800,000 price range in certain of its California markets. Reputation for High Quality, Single-Family Homes. The Company believes that it has an established reputation for providing high quality homes. The Company prides itself on its ability to design unique and attractive homes and provide its customer with a wide selection of options. The Company believes that its long history of providing high quality homes has resulted in many repeat buyers and word-of-mouth sales. The Company also uses extensive marketing to sell its homes, and its homes are generally sold by its own staff of sales personnel through the use of model homes which are usually maintained at each project site. The Company also makes extensive use of advertisements in local newspapers, illustrated brochures, billboards and on-site displays. Conservative Operating Strategy. The Company customarily acquires unimproved or improved land zoned for residential use which appears suitable for the construction of 50 to 300 homes in increments of 10 to 30 homes. The Company generally purchases land only when it projects commencement of construction within a relatively short time period. The number of homes built in the first increment of a project is based upon internal market studies. The timing and size of subsequent increments depend to a large extent upon sales rates experienced in the earlier increments. By developing projects in increments, the Company has been able to respond to local market conditions and control the number of its completed and unsold homes. Additionally, an increasing percentage of the Company's lots are controlled through joint ventures. The Company uses joint ventures for certain land development projects that have long lead times or are of significant size requiring substantial capital investments. Strong Land Position. The Company has been operating in California for over 30 years and has established an excellent reputation with land owners. The Company believes that its long standing relationships with land owners and developers in California give the Company a competitive edge in securing quality land 1 positions at competitive prices. In order to ensure an adequate supply of land for future homebuilding activities, the Company generally attempts to maintain an inventory of building sites sufficient for construction of homes over a period of approximately three to five years. The Company believes that its 9,016 owned or controlled building sites at December 31, 1997, in addition to any land sites for which the Company may enter into negotiations, will be sufficient for its operations over this period. Geographic Diversification. The Company has focused its California homebuilding activities in Orange, Riverside, San Bernardino, San Diego and Ventura Counties in southern California, and in the San Francisco Bay area of northern California. Additionally, the Company has projects in the Houston, Dallas and Austin markets in Texas. The Company's policy of diversifying among different geographic areas has enabled it to reduce the impact of adverse local economic conditions. Additionally, the Company believes that it has significant opportunities to expand in its existing markets and to enter new geographic markets. Control of Overhead and Operating Expenses. Throughout its history, the Company has sought to minimize overhead expenses in order to be more flexible in responding to the cyclical nature of its business. The Company strives to control its overhead costs by centralizing certain of its administrative functions and by limiting the number of middle level management positions. Experienced Management and Decentralized Operations. The Company's senior corporate and division operating managers average over 20 years of experience in the homebuilding business. Each division is run by a local manager. One of the essential criteria in the selection of a divisional manager is the individual's in-depth familiarity with the geographic areas within which the division operates. The decisions regarding selection of parcels of land for purchase and development are made in conjunction with the officers of the Company, and thereafter, each manager conducts the operations of the division relatively autonomously as a separate profit center. 2 OPERATIONS The Company currently conducts activities in California and Texas through a total of six geographic divisions, with 99 projects under development or held for future development at December 31, 1997. The table below sets forth certain information for each division and for the Company as a whole for the periods indicated.
YEAR ENDED AS OF DECEMBER 31, 1997 DECEMBER 31, 1997(1) ------------------ ------------------------------------------------- TOTAL NUMBER NUMBER OF BUILDING HOMES AVERAGE OF PROJECTS PROJECTS SITES UNDER HOME HELD FOR IN SALES OWNED OR CONSTRUC- PRESOLD HOMES SELLING DEVELOPMENT STAGE CONTROLLED TION HOMES DELIVERED PRICE (2) (3) (4) (5) (6) --------- -------- ----------- -------- ---------- --------- ------- Orange County........... 456 $385,596 21 9 2,212 150 83 San Diego County........ 137 304,081 9 4 874 120 93 Ventura County.......... 256 255,395 8 5 513 136 94 San Francisco Bay area.. 628 345,531 30 10 2,880 172 151 Houston................. 168 142,159 8 7 472 53 52 Dallas/Austin........... 234 234,021 17 13 1,298 55 66 ----- -------- --- --- ----- --- --- Total Consolidated...... 1,879 307,265 93 48 8,249 686 539 Unconsolidated Joint Ventures--California... 67 364,585 6 3 767 22 27 ----- -------- --- --- ----- --- --- Totals for and as of the year ended December 31, 1997................... 1,946 $309,239 99 51 9,016 708 566 ===== ======== === === ===== === === Totals for and as of the year ended December 31, 1996................... 1,623 $261,681 77 53 6,527 599 485 ===== ======== === === ===== === ===
- -------- (1) Includes as of December 31, 1997, 102 model homes and 116 completed and unsold homes, and as of December 31, 1996, 135 model homes and 206 completed and unsold homes. (2) The total number of projects held for development as of the end of each period shown includes projects with homes in the sales stage, under construction and projects in various stages of planning. (3) The number of projects in the sales stage includes projects where the sales office has opened and/or the Company has begun to enter into sales contracts for the sale of its homes. (4) Includes homes reflected in Homes Under Construction and Presold Homes. (5) Includes certain homes reflected in Presold Homes. (6) See "--Marketing and Sales" for information concerning cancellation rates and contractual arrangements under which homes are presold. Each division is run by a local manager. One of the essential criteria in the selection of a divisional manager is the person's in-depth familiarity with the geographic areas within which the division operates. The decisions regarding selection of parcels of land for purchase and development are made in conjunction with the officers of the Company, and thereafter, each manager conducts the operations of the division relatively autonomously as a separate profit center. Substantially all of the Company's homes sold are single-family detached dwellings, although during the past few years approximately 5 percent to 10 percent have been townhouses or condominiums generally attached in varying configurations of two, three, four and six dwelling units. The Company's homes are designed to suit the particular area of the country in which they are located and are available in a variety of models, exterior styles and materials depending upon local preferences. Homes built by the Company are targeted for occupancy as primary residences. While the homes built by the Company 3 typically range in size from approximately 1,800 to 2,800 square feet and typically include three or four bedrooms, two or three baths, a living room, kitchen, dining room, family room and a two or three-car garage, the Company also has built single-family attached and detached homes ranging from 1,100 to 5,500 square feet. For the years ended December 31, 1997, 1996 and 1995, the average selling prices of the Company's homes, including sales of the unconsolidated joint ventures, were $309,239, $261,681, and $271,936, respectively. LAND ACQUISITION, DEVELOPMENT AND CONSTRUCTION In considering the purchase of land for the development of a project, the Company reviews such factors as proximity to existing developed areas; population growth patterns; availability of existing community services such as water, gas, electricity and sewers; school districts; employment growth rates; the expected absorption rate for new housing; environmental condition of the land; transportation availability and the estimated costs of development. Generally, if all requisite governmental agency approvals are not in place, the Company enters into a conditional agreement to purchase a parcel of land, making only a nominal deposit on the property. The general policy of the Company is to complete a purchase of land only when it can reasonably project commencement of construction within a relatively short period of time. Closing of the land purchase is, therefore, generally made contingent upon satisfaction of conditions relating to the property and to the Company's being able to obtain all requisite approvals from governmental agencies within a certain period of time. The Company customarily acquires unimproved or improved land zoned for residential use which appears suitable for the construction of 50 to 300 homes, which construction is accomplished in smaller sized increments. The number of homes built in the first increment of a project is based upon the Company's internal market studies. The timing and size of subsequent increments depends on the sales rates of earlier increments. The Company's development work on a project includes obtaining any necessary zoning, environmental and other regulatory approvals, and constructing, as necessary, roads, sewer and drainage systems, recreational facilities and other improvements. The Company typically uses both its equity (internally generated funds) and unsecured financing in the form of bank debt and other unsecured debt to fund land acquisitions. The Company also uses purchase money trust deeds to finance the acquisition of land. Generally, with the exception of joint ventures, specific project financing is not used. The Company has entered into joint venture arrangements to develop certain parcels of land. During 1993, the Company's Orange County division entered into a joint venture agreement to develop and deliver 469 homes. For the years ended December 31, 1997, 1996, 1995 and 1994, the Company delivered 15, 151, 195 and 108 homes, respectively, through this unconsolidated joint venture. In 1995, the Company's Orange County division entered into a joint venture arrangement to develop 209 lots in the city of Orange, California. The Company will purchase all 209 lots for the construction and sale of homes. Additionally, in 1996 the Company's Orange County division entered into another joint venture to develop and deliver approximately 800 homes in Fullerton and Brea, California. During 1997 and 1996, the Company delivered 52 and three new homes, respectively, from this unconsolidated joint venture. In the first half of 1997, the Company's northern California division entered into a joint venture to develop approximately 700 lots in Gilroy, California. Fifty percent of these lots will be sold to the Company for the construction and sale of homes. The Company has made an investment of approximately $9.4 million in this joint venture. During 1997, the Company entered into a joint venture with affiliates of Catellus Development Corporation and Starwood Capital Group L.L.C. to acquire and develop a 3,470-acre masterplanned community located in south Orange County (the "Talega Joint Venture"). The Talega Joint Venture plans to develop and deliver in phases finished lots for up to approximately 4,500 attached and detached homes, as well as a championship golf course, certain community amenities and commercial and industrial components. As a one-third participant in this long-term project, the Company is obligated to invest up to $20.0 million in the project and will receive certain rights of first offer entitling the Company to purchase up to 1,000 finished lots from the joint venture for construction and sale of homes by the Company. As of December 31, 1997, the Company had made investments of approximately $10.9 million in this joint venture. 4 The Company essentially functions as a general contractor with its supervisory employees coordinating all work on the project. The services of independent architectural, design, engineering and other consulting firms are engaged to assist in project planning, and subcontractors are employed to perform all of the physical development and construction work on the project. The Company does not have long-term contractual commitments with any of its subcontractors, consultants or suppliers of materials. However, because of its market presence and long-term relationships, the Company has generally been able to obtain sufficient materials and commitments from subcontractors and consultants during times of market shortages. These types of agreements are generally entered into on an increment-by-increment basis at a fixed price after competitive bidding. The Company believes that the low fixed labor expense resulting from conducting its operations in this manner has been instrumental in enabling it to retain the necessary flexibility to react to increases or decreases in demand for housing. Although the construction time for the Company's homes varies from project to project depending on the time of year, local labor situations, certain governmental approval processes, availability of materials and supplies and other factors, the Company can typically complete the construction phase of an increment within one of its projects in approximately four to six months. MARKETING AND SALES The Company's homes are generally sold by its own staff of sales personnel. Furnished and landscaped model homes are usually maintained at each project site. Homebuyers are afforded the opportunity to select, at additional costs, various optional amenities such as prewiring options, upgraded flooring, cabinets and counter tops, varied interior and exterior color schemes, additional appliances and some room configurations. The Company makes extensive use of advertisements in local newspapers, illustrated brochures, billboards and on-site displays. The Company's homes are typically sold during construction using sales contracts which are usually accompanied by a cash deposit, although some of the Company's homes are sold after completion of construction. In some cases, purchasers are permitted to cancel these contracts if they are unable to sell their existing homes or fail to qualify for financing and under certain other circumstances. During each of the years ended December 31, 1997, 1996 and 1995, the Company experienced cancellation rates of 22 percent, 24 percent and 25 percent, respectively. Although cancellations can delay the delivery of the Company's homes, they have not, during the last few years, had a material negative impact on sales, operations or liquidity because of the Company's policy of closely monitoring the progress of prospective buyers in obtaining financing and monitoring and adjusting its start plan to better match the level of demand for its homes. Sales are recorded after construction is completed, required down payments are received and title passes. At December 31, 1997, 1996 and 1995, the Company had an inventory of completed and unsold homes of 116, 206 and 239, respectively. FINANCING Home purchase financing from local lending institutions generally averages 80 percent or more of the purchase price of the homes. During periods of high mortgage rates or difficult economic times, the Company may assist its homebuyers by "buying-down" the interest rates on mortgage loans or subsidizing all or a part of the homebuyers' up front financing fees. The amounts of such "buy-downs" or subsidies is dependent upon prevailing market conditions and interest rate levels. During the past few years the amount of such "buy-downs" has not been significant due to the generally low level of mortgage interest rates. The Company recently formed Family Lending Services, Inc. ("Family Lending Services"), which will operate as a mortgage banking subsidiary of the Company, offering mortgage financing to the Company's home buyers and others. Family Lending Services is in the process of obtaining required regulatory approvals and mortgage warehouse financing and is currently expected to begin offering mortgage financing to home buyers in the second quarter of 1998. 5 CERTAIN FACTORS AFFECTING THE COMPANY'S OPERATIONS Set forth below are certain matters that may affect the Company. Land Acquisition and Inventory Risks. The development, construction and sale of homes are subject to various risks including, among other things, the continued availability of suitable undeveloped land at reasonable prices and adverse local market conditions resulting from changes in economic conditions or competitive over-building. In the early 1990's and as a result of the national and California recessions which began in 1990, the Company recorded aggregate writedowns of approximately $8.8 million on several of the Company's California projects to value the remaining homes in these projects at estimated net realizable values in order to provide for reserves to cover potential price concessions. At December 31, 1995, and as a result of continued adverse trends experienced in some of the Company's markets, particularly in San Diego, coupled with the adoption of FAS 121, the Company recorded a $46.5 million noncash pretax charge against operations. FAS 121 required a change in the method of valuing long-lived assets, including assets such as the Company's real estate holdings. See Note 2 of the Notes to the Company's consolidated financial statements included elsewhere in this Form 10- K. Although the Company believes that it has acquired a sufficient number of lots to provide for its home construction activities for the near term, no assurances can be given that the Company will be able to sell the homes it produces on a profitable basis. Economic Conditions and Interest Rates. The Company's business is highly cyclical and is affected by national, world and local economic conditions and events and the effect such conditions and events have on the markets it serves in California and Texas and in particular by the level of mortgage interest rates and consumer confidence in those regions. The Company cannot predict whether interest rates will be at levels attractive to prospective homebuyers. If interest rates increase, and in particular mortgage interest rates, the Company's operating results could be adversely impacted. The recent downturn and continued uncertainty in Asian financial markets, including the devaluation of various Asian currencies, could have an adverse impact on the California and Texas economies and the demand for homes in those states. Dependence on California Market. The Company presently conducts most of its business in California. There have been periods of time in California where economic growth has slowed and the average sales price of homes in certain areas in California in which the Company does business have declined. There can be no assurance that home sales prices will not decline in the future. In past years, several cities and counties in California in which the Company has delivered a significant number of homes have approved the inclusion of "slow growth" initiatives and other election ballot measures which could impact the affordability and availability of homes and land within those localities. Although some of these initiatives have been defeated, the Company believes that if, in the future, similar initiatives are introduced and approved, future residential construction by the Company could be negatively impacted. Competition. The homebuilding industry is highly competitive, with homebuilders competing for customers, desirable properties, financing, raw materials and skilled labor. In each of the areas in which it operates, the Company competes in terms of location, design, quality, price and available mortgage financing with numerous other residential construction firms, including large national and regional firms, some of which have greater financial resources than the Company. In addition, the Company competes with resales of existing residential housing by individuals, financial institutions and others. The Company also competes with rental properties in certain markets. Regulatory and Environmental Matters. The housing industry is subject to environmental, building, worker health and safety, zoning and real estate regulations by various Federal, state and local authorities. The environmental laws that apply to a given homebuilding site depend upon the site's location, its environmental condition and the present and former uses of the site, as well as adjoining properties. Environmental laws and 6 conditions may result in delays, may cause the Company to incur substantial compliance and other costs, and can prohibit or severely restrict homebuilding activity in certain environmentally sensitive regions or areas. In addition, certain new developments, particularly in southern California, are subject to various assessments for schools, parks, streets and highways and other public improvements, the costs of which can be substantial. By raising the price of the Company's homes to its customers, an increase in such assessments could have a negative impact on the Company's sales. In developing a project, the Company must obtain the approval of numerous governmental authorities regulating such matters as permitted land uses and levels of density, the installation of utility services, such as water and waste disposal, and the dedication of acreage for open space, parks, schools and other community purposes. Furthermore, changes in prevailing local circumstances or applicable law may require additional approvals or modifications of approvals previously obtained, including environmental, zoning and other entitlement issues and may cause delays in the development process. Prior to acquiring a parcel of land, the Company may utilize deposit arrangements which allow the Company ample time to perform proper diligence and investigate and resolve necessary issues. Risk of Material and Labor Shortages. The Company is not presently experiencing any serious material or labor shortages; however, the residential construction industry in the past has, from time to time, experienced serious material and labor shortages, including shortages in insulation, drywall, certain carpentry work and cement and fluctuating lumber prices and supply. Delays in construction of homes and higher costs due to these shortages could have an adverse effect on the Company's operations. Natural Risks. Climatic conditions, such as unusually heavy or prolonged rain, including "El Nino" conditions, or other natural disasters such as earthquakes or fires, may affect operations in certain areas. In addition, the state of California has periodically experienced drought conditions resulting in water conservation measures and in some cases rationing by local municipalities in which the Company does business. Restrictions by governmental agencies on future construction activity as a result of limited water supplies could have an adverse effect upon the Company's operations. EMPLOYEES At December 31, 1997, the Company had approximately 427 employees (excluding employees of discontinued operations). During the past five years, the Company has not directly experienced a work stoppage in its operations caused by labor disputes. Construction of homes in projects developed by the Company has, from time to time, been delayed due to strikes by certain construction unions against subcontractors retained by the Company or strikes against suppliers of materials used in the construction of homes. Such delays have not had a significant adverse effect on the Company's homebuilding operations. The Company believes that its relations with its homebuilding employees and subcontractors are satisfactory. ITEM 2. PROPERTIES In addition to real estate held for development and sale, which is either owned or under option to be purchased by the Company, the Company leases approximately 4.8 acres of land in Costa Mesa, California under leases expiring in 2002 on which the Company's executive office, the offices of the Orange County housing division and a manufacturing facility (which is subleased to an unrelated party) are located. The Company's other real estate housing divisions occupy various facilities under leases which expire from 1998 through 2002. The administrative office and branch location for Standard Pacific Savings, F.A. ("Savings") is located in Newport Beach, California. A total of 5,072 square feet is leased under a lease which expires in 2004. In addition, Family Lending Services occupies approximately 9,300 square feet of a facility in Newport Beach, California under a lease that expires in February 2005. 7 As of December 31, 1997, the Company was subleasing approximately 59,000 square feet of manufacturing facilities to unrelated parties under leases expiring beginning in May 1998. The Company believes that all of its properties are well suited for the purposes for which they are used. ITEM 3. LEGAL PROCEEDINGS Various claims and actions, considered normal to the Company's business, have been asserted and are pending against the Company and its subsidiaries. The Company believes that such claims and actions should not have a material adverse effect upon the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company, their ages and positions with the Company, and brief accounts of their business experience, are set forth below.
NAME AGE POSITION - ---- --- -------- Arthur E. Svendsen 74 Chairman of the Board and Chief Executive Officer; Director Stephen J. Scarborough 49 President; Director Andrew H. Parnes 39 Vice President--Finance, Treasurer and Chief Financial Officer Clay A. Halvorsen 38 Vice President, General Counsel and Secretary
Arthur E. Svendsen has served as the Chairman of the Board and Chief Executive Officer of the Company since 1961. Stephen J. Scarborough has served as a Director since May 1996 and as President of the Company since October 1996. Mr. Scarborough served as Executive Vice President of the Company from January 1996 until October 1996. Prior to this and since 1981, Mr. Scarborough was President of the Company's Orange County, California residential homebuilding division. Andrew H. Parnes was appointed to the position of Vice President--Finance in January 1997. In addition, he has served as the Company's Chief Financial Officer since July 1996 and as the Company's Treasurer since January 1991. From December 1989 until July 1996, Mr. Parnes served as the Company's Controller. Clay A. Halvorsen joined the Company as Vice President, General Counsel and Secretary in January 1998. Previously, from 1985 through December 1997, Mr. Halvorsen practiced with the law firm of Gibson, Dunn & Crutcher LLP, where he became a partner in January 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's shares of common stock are listed on the New York Stock Exchange and Pacific Stock Exchange. The following table sets forth, for the fiscal quarters indicated, the reported high and low closing prices of the common shares as reported on the New York Stock Exchange Composite Tape and the amount of common dividends paid.
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1997 1996 ------------------------ ---------------------- QUARTER ENDED HIGH LOW DIVIDEND HIGH LOW DIVIDEND ------------- ------- ------- -------- ------ ------ -------- March 31.................. $ 8 3/4 $ 5 5/8 $.03 $7 1/4 $5 7/8 $.03 June 30................... 10 1/2 6 3/8 .03 7 3/8 6 3/8 .03 September 30.............. 13 10 1/8 .04 7 1/8 5 3/4 .03 December 31............... 16 1/4 9 3/4 .04 6 1/4 5 1/4 .03
As of March 1, 1998, the approximate number of record holders of common stock of the Company was 1,683. 8 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1996 1995(1) 1994 1993 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues................ $ 584,571 $ 399,863 $ 346,263 $ 374,783 $ 249,884 ========== ========== ========== ========== ========== Income (loss) from continuing operations before income taxes and cumulative effect of change in accounting for income taxes....... $ 41,046 $ 12,948 $ (37,247) $ 11,200 $ (1,617) (Provision) benefit for income taxes........... (17,070) (5,197) 14,890 (4,595) 710 ---------- ---------- ---------- ---------- ---------- --- Income (loss) from continuing operations before cumulative effect of change in accounting for income taxes.................. 23,976 7,751 (22,357) 6,605 (907) Income (loss) from dis- continued operations, net of income taxes.... 48 642 (5,006) (718) 2,726 Gain on disposal of dis- continued operation, net of income taxes.... 3,302 -- -- -- -- Cumulative effect of change in accounting for income taxes....... -- -- -- -- 858 ---------- ---------- ---------- ---------- ---------- Net income (loss)....... $ 27,326 $ 8,393 $ (27,363) $ 5,887 $ 2,677 ========== ========== ========== ========== ========== Basic Income (Loss) Per Share: Income (loss) per share from continuing opera- tions.................. $ 0.82 $ 0.26 $ (0.73) $ 0.21 $ (0.03) Income (loss) per share from discontinued oper- ations, net of income taxes.... 0.00 0.02 (0.17) (0.02) 0.09 Gain on disposal of dis- continued operation, net of income taxes.... 0.11 -- -- -- -- Cumulative effect of change in accounting for income taxes....... -- -- -- -- 0.03 ---------- ---------- ---------- ---------- ---------- Net income (loss) per share.................. $ 0.93 $ 0.28 $ (0.90) $ 0.19 $ 0.09 ========== ========== ========== ========== ========== Diluted Income (Loss) Per Share: Income (loss) per share from continuing opera- tions.................. $ 0.81 $ 0.26 $ (0.73) $ 0.22 $ (0.03) Income (loss) per share from discontinued operations, net of income taxes........... 0.00 0.02 (0.17) (0.03) 0.09 Gain on disposal of dis- continued operation, net of income taxes.... 0.11 -- -- -- -- Cumulative effect of change in accounting for income taxes....... -- -- -- -- 0.03 ---------- ---------- ---------- ---------- ---------- Net income (loss) per share.................. $ 0.92 $ 0.28 $ (0.90) $ 0.19 $ 0.09 ========== ========== ========== ========== ========== Stockholders' equity per share.................. $ 9.58 $ 8.79 $ 8.58 $ 9.56 $ 9.49 Cash dividends paid per share.................. $ 0.14 $ 0.12 $ 0.12 $ 0.12 $ 0.12 Weighted average common shares outstanding- basic.................. 29,504,477 30,000,492 30,488,676 30,616,991 30,585,442 Weighted average common and diluted shares out- standing-diluted....... 29,807,702 30,011,595 30,488,676 30,674,349 30,633,471 Total assets............ $ 547,665 $ 449,114 $ 444,603 $ 531,768 $ 542,696 Long-term debt: continu- ing operations......... $ 214,305 $ 80,000 $ 129,062 $ 134,360 $ 147,273 Stockholders' equity.... $ 283,778 $ 260,389 $ 257,926 $ 292,743 $ 290,395
- -------- (1) The 1995 pretax loss from continuing operations of $37.2 million reflects the adoption of Financial Accounting Standards No. 121 ("FAS 121") which resulted in a $46.5 million noncash pretax charge to operations. See Note 2 to the Company's consolidated financial statements included elsewhere in this Form 10-K. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Financial Data" and the Company's consolidated financial statements and the related notes included elsewhere in this Form 10-K. RESULTS OF OPERATIONS SELECTED FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, ---------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) Revenues...................................... $584,571 $399,863 $346,263 Cost of sales................................. 490,876 348,066 307,794 Noncash charge for impairment of long-lived assets....................................... -- -- 46,491 -------- -------- -------- Gross margin................................ 93,695 51,797 (8,022) -------- -------- -------- Gross margin percentage..................... 16.0% 13.0% 11.1%(1) -------- -------- -------- Selling, general and administrative expenses.. 52,141 37,351 34,873 Income from unconsolidated joint ventures..... 3,787 4,708 6,953 Interest expense.............................. 4,981 7,142 1,860 Amortization of excess of cost over net assets acquired..................................... 245 -- -- Other income.................................. 931 936 555 -------- -------- -------- Income (loss) from continuing operations before income taxes........................ $ 41,046 $ 12,948 $(37,247) ======== ======== ======== - --------
(1) The 1995 homebuilding gross margin percentage excludes the $46.5 million noncash charge for the adoption of FAS 121. OPERATING DATA
YEAR ENDED DECEMBER 31, -------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT AVERAGE SELLING PRICES) New homes delivered: California......................................... 1,477 1,131 942 Texas.............................................. 402 338 299 Joint ventures (California)........................ 67 154 195 -------- -------- -------- Total.............................................. 1,946 1,623 1,436 ======== ======== ======== Net new orders: California......................................... 1,599 1,458 1,145 Texas.............................................. 428 340 335 -------- -------- -------- Total.............................................. 2,027 1,798 1,480 ======== ======== ======== Backlog at year end (in units)....................... 566 485 312 Backlog at year end (in dollars)..................... $191,682 $168,674 $ 77,945 Active selling communities at year end............... 51 53 49 Average selling price: California deliveries (excluding joint ventures)... $337,649 $292,007 $308,383 Texas deliveries................................... $195,631 $185,622 $180,058 Combined (excluding joint ventures)................ $307,265 $267,529 $277,465 Combined (including joint ventures)................ $309,239 $261,681 $271,936
10 Fiscal Year 1997 Compared to Fiscal Year 1996 Net income from continuing operations for the year ended December 31, 1997 increased 209 percent from the previous year to $24.0 million, or $0.81 per diluted share, compared to $7.8 million, or $0.26 per diluted share, in 1996. The strong increase in earnings resulted from a record number of new home deliveries, an increase in the average selling price of homes and continued gross margin improvement from the Company's California homebuilding operations. The Company delivered 1,946 new homes in 1997 (including 67 homes delivered by the Company's unconsolidated joint ventures), a new fiscal year high, at an average selling price of $309,239 compared to 1,623 new homes (including 154 homes delivered by the Company's unconsolidated joint ventures) at an average selling price of $261,681 during 1996. Homebuilding revenues (excluding the Company's unconsolidated joint ventures) also reached a new high of $584.6 million in 1997, an increase of 46.2 percent from the prior year. The increase in revenues from the prior year of approximately $184.7 million resulted primarily from an increase of $109.7 million attributable to a 27.9 percent increase in new home deliveries, a $74.7 million increase due to a 14.9 percent higher average selling price, with the balance of the increase attributable to land sales. The Company's Northern California division experienced an increase in deliveries over last year of 71.6 percent to 628 homes, while deliveries from the southern California operations were in line with the strong level of deliveries generated in 1996. The increase in the average selling price in 1997 resulted primarily from a greater distribution of homes delivered in the $400,000 to $800,000 price range in California. Cost of sales increased by $142.8 million from the previous year, or 41.0 percent, of which $95.1 million was due to an increase in the number of new homes delivered while $48.2 million was attributable to an increase in the average cost of new homes delivered. The increase in cost of sales was partially offset by a reduction in costs associated with land sales. The increase in the average cost of new homes delivered in 1997 was primarily due to the changing product mix towards higher-priced homes. The gross margin percentage for 1997 increased to 16.0 percent from 13.0 percent in 1996. This increase was primarily due to the healthy California housing market. Selling, general and administrative expenses decreased as a percentage of revenues from 9.3 percent in 1996 to 8.9 percent in 1997. This decrease is attributable to the fixed level of certain general and administrative expenses, as well as a reduction in selling costs as a percent of revenues due to the improving housing market in California. Income from unconsolidated joint ventures declined from approximately $4.7 million in 1996 to $3.8 million in 1997 as a result of fewer unit deliveries as compared to the previous year. Although joint venture unit deliveries were down from the prior year, both gross margins and average selling prices for the ventures increased respectively from 1996 levels. Interest incurred for 1997 was $17.0 million of which $12.0 million was capitalized to real estate inventories and approximately $5.0 million was expensed compared to $16.7 million incurred in 1996 of which $9.5 million was capitalized and $7.1 million expensed. The increase in the amount of interest capitalized in 1997 was due primarily to more projects under development throughout 1997 as compared to the year earlier period. Amortization of excess of cost over net assets acquired relates to the acquisition on September 30, 1997 of Duc Development Company, a privately held northern California homebuilder. The excess of cost over net assets acquired is being amortized over a seven-year period. 11 The Company generated a record net new order total of 2,027 homes for 1997, a 12.7 percent increase from the previous year. The Company's Northern California orders increased 28.1 percent to 607 homes while the Texas operations combined for a 25.9 percent improvement in net new orders over the prior year. This strong order trend translated into a backlog of presold homes of 566, a 16.7 percent increase over the 1996 year-end total, and the highest level in eight years. Net orders in 1997 for the Company's southern California operations were in line with the strong level generated in 1996. As a result of higher than expected deliveries and orders in the fourth quarter of 1997, which had the effect of reducing the Company's inventory of homes available for sale entering 1998, and the anticipated timing of the Company's new project openings, the Company expects that net new orders for the first quarter of 1998 will be less than the record level of net new orders for the first quarter of 1997. However, the Company anticipates opening 35 to 40 new model home complexes during 1998, with many of these openings occurring in the second and third quarters. Consequently, the Company anticipates that its order volume for the year will be weighted more towards the middle and second half of the year. Net income for 1997, including discontinued operations, was $27.3 million, or $0.92 per diluted share, compared to $8.4 million, or $0.28 per diluted share in 1996. The discontinued operations reflect the Company's savings and loan subsidiary and the Company's former office furniture subsidiary, which was sold in December for a net gain of approximately $3.3 million, or $0.11 per diluted share. See "--Discontinued Operations" for further discussion of the discontinued operating segments of the Company. Fiscal Year 1996 Compared to Fiscal Year 1995 Net income from continuing operations for the year ended December 31, 1996 increased to $7.8 million, or $0.26 per diluted share, compared to a loss of ($22.4) million, or ($0.73) per diluted share, in 1995. The increase in earnings resulted from an increase in new home deliveries and an improvement in gross margins. In addition, 1995 reflects a pretax noncash charge of approximately $46.5 million for the adoption of FAS 121 (See Note 2 to the Company's consolidated financial statements included elsewhere in this Form 10-K). During the year ended December 31, 1996, the Company delivered 1,623 new homes (including 154 homes delivered by the Company's unconsolidated joint ventures) at an average selling price of $261,681 compared to 1,436 new homes (including 195 homes delivered by the Company's unconsolidated joint venture) at an average selling price of $271,936 during 1995. Homebuilding revenues increased by 15.5 percent from 1995, while cost of sales (before the impairment charge in 1995) increased by 13.1 percent. The increase in revenues from 1995 of approximately $53.6 million resulted primarily from an increase of $63.3 million attributable to 228 more homes delivered and a $4.9 million increase in revenues attributable to land sales, which were partially offset by a decrease of $14.6 million due to a 3.6 percent lower average selling price of new homes delivered. The increase in unit deliveries was primarily attributable to a 45.8 percent increase in deliveries from the Northern California division to 366 homes, an 18.7 percent increase in deliveries from the Ventura division to 184 homes and a 13.0 percent increase in Texas deliveries to 338 homes. The increase in deliveries was attributed to, among other things, improved market conditions in the geographic markets the Company serves, particularly in California, as well as lower mortgage interest rates during most of 1996 as compared to fiscal 1995. The average selling price of the Company's homes is impacted by product mix, geographic mix and changing prices on homes sold. The decrease in the average selling price from 1995 to 1996 was due primarily to a reduction in deliveries of higher priced homes from the Company's Orange County division. The $40.3 million increase in cost of sales (before the impairment charge in 1995) included $56.2 million attributable to an increased number of new home deliveries and a $5.8 million increase in cost of sales attributable to undeveloped lots sold, which were partially offset by a decrease of $21.7 million due to a decline in the average cost of new homes delivered. The reduction in the average cost of new homes delivered was primarily due to the changing product mix discussed above. 12 The gross margin percentage for 1996 was 13.0 percent compared to 11.1 percent (before the impairment charge) in 1995. The increase in the gross margin percentage was primarily due to improved market conditions in the California markets, higher absorption rates, as well as proportionately more deliveries from newer projects in 1996 as compared to 1995. The newer projects generally carry higher margins than older projects, which include land acquired in prior years at higher prices. Selling, general and administrative expenses decreased as a percentage of revenues from 10.1 percent in 1995 to 9.3 percent in 1996. This decline can be attributed to increased revenues of 15.5 percent from the prior year period. Income from the unconsolidated joint ventures decreased from approximately $7.0 million in 1995 to $4.7 million in 1996 as a result of fewer unit deliveries as well as more deliveries of lower priced product from one of the joint ventures. This joint venture delivered 151 new homes in 1996 compared to 195 new homes in 1995. The Company delivered three homes from a new joint venture during the fourth quarter of 1996. Interest incurred for 1996 was $16.7 million of which $9.5 million was capitalized to real estate inventories and $7.1 million was expensed compared to $19.2 million incurred in 1995 of which $17.3 million was capitalized and $1.9 million expensed. CARRYING COSTS, REAL ESTATE INVENTORIES AND COST OF SALES
AT DECEMBER 31, -------------------------------- 1997 1996 1995 --------- --------- ---------- (DOLLARS IN MILLIONS) Carrying costs in inventory and the percent- age of total real estate inventory: Interest.................................. $13.7 3.0% $25.1 6.7% $32.5 8.8% Property taxes............................ 8.6 1.9 8.0 2.1 8.8 2.4 ----- --- ----- --- ----- ---- $22.3 4.9% $33.1 8.8% $41.3 11.2% ===== === ===== === ===== ==== Total real estate inventories............... $452 $373 $368 Cost of sales for the year then ended (be- fore FAS 121 adjustment for 1995) ...................... 491 348 308 Ratio of cost of sales to ending inventory (Inventory turn ratio)..................... 1.09 .93 .84
The increase in the 1997 inventory turn ratio is due to a 41 percent increase in cost of sales while real estate inventories increased only 21 percent. This positive trend is primarily due to a 28 percent increase in unit deliveries resulting from strong housing market conditions in California. Additionally, during 1997 the Company delivered homes from certain of its older projects which have been in the Company's inventory balances for several years. These projects generally had higher land and interest costs than more recent acquisitions. The newer projects generally develop and deliver more quickly than the older projects which results in a higher inventory turn ratio and a lower amount of carrying costs in ending inventory. Capitalized interest in real estate inventory at December 31, 1997 decreased approximately $11.4 million from December 31, 1996, a reduction of approximately 45 percent. This decrease can be attributed to (i) the sale of homes from older projects which generally include higher carry costs than newer projects and (ii) improving market conditions which have resulted in shorter holding periods and a higher inventory turnover rate. 13 UTILIZATION OF DEBT AND EQUITY IN FUNDING REAL ESTATE INVENTORIES Sources of financing for the Company's real estates inventories were as follows for the three years ended December 31, 1997:
AT DECEMBER 31, ---------------- 1997 1996 1995 ---- ---- ---- Purchase money deeds of trust................................. 4% 1% 4% Unsecured debt................................................ 44 42 40 Equity........................................................ 52 57 56 --- --- --- 100% 100% 100% === === ===
DISCONTINUED OPERATIONS Disposition of Panel Concepts. In December 1997, the Company completed the sale of Panel Concepts, Inc. ("Panel Concepts") to HON Industries, Inc., a national furniture manufacturer, for a cash sales price of approximately $9.5 million, after distribution of certain non-operating assets to the Company totaling approximately $9 million. Panel Concepts has been accounted for as a discontinued operation and the results of its operations have been segregated in the Company's consolidated financial statements included elsewhere in this Form 10-K. Disposition of Standard Pacific Savings. In May 1997, the Company's Board of Directors adopted a plan of disposition for Savings. Pursuant to the plan, the Company sold substantially all of Savings' mortgage loan portfolio in June 1997. The Company also entered into a definitive agreement to sell the remainder of Savings' business, including Savings' charter. The definitive agreement was subject to a number of conditions, including approval of the transaction by the Office of Thrift Supervision ("OTS"). As a result of the failure of the OTS to approve the transaction prior to the definitive agreement's termination date, the definitive agreement terminated on January 31, 1998. The Company plans to continue pursuing a disposition strategy with respect to Savings and, therefore, Savings has been accounted for as a discontinued operation and the results of its operations have been segregated in the Company's consolidated financial statements included elsewhere in this Form 10-K. Savings has not offered mortgage financing to the Company's home buyers since July 1994, and the sale of Savings is not expected to have any impact on sales of the Company's homes. Management currently estimates that both the disposition of Savings under the plan and the operating results of Savings for the period through the disposition will not result in a significant gain or loss to the Company. RECENT DEVELOPMENTS The Company has entered into a non-binding letter of intent to acquire The Olson Company, a leading southern California urban in-fill homebuilder, for proposed consideration consisting of the issuance of 942,723 shares of the Company's common stock and the grant of options to acquire an additional 360,296 shares of the Company's common stock. The proposed acquisition offers the Company the opportunity to develop a leading presence in a complementary and growing homebuilding market segment. If completed, it is expected that the acquisition would be accounted for as a pooling of interests. This transaction is subject to customary conditions, including execution of a definitive acquisition agreement and satisfactory completion of the Company's due diligence examination. No assurances can be given that the transaction will be consummated. In August 1997, the Company formed Family Lending Services, which will operate as a mortgage banking subsidiary of the Company, offering mortgage financing to the Company's home buyers and others. Family Lending Services is in the process of obtaining required regulatory approvals and mortgage warehouse financing and is currently expected to begin offering mortgage financing to home buyers in the second quarter of 1998. Accordingly, the financial position and related results of operations of Family Lending Services for the year ended December 31, 1997 have been reflected as continuing operations in the accompanying consolidated balance sheets and statements of operations. 14 LIQUIDITY AND CAPITAL RESOURCES The Company's principal uses of cash have been for operating expenses, land acquisitions, construction expenditures, market expansion, principal and interest payments on debt and dividends to shareholders. Cash requirements were provided from internally generated funds and outside borrowings, including a bank revolving credit facility and note offerings. Management believes that these sources of cash are sufficient to finance its current working capital requirements and other needs. In August 1997, the Company and its bank group amended the Company's unsecured revolving credit facility (the "Revolving Credit Facility") to, among other things, increase the commitment to $275 million, increase the term of the facility from three years to four years and reduce the cost of borrowings and other fees. The facility has a current maturity date of July 31, 2001. This agreement contains covenants, including certain financial covenants. This agreement also contains provisions which may, in certain circumstances, limit the amount the Company may borrow under the Revolving Credit Facility. At December 31, 1997, the Company had borrowings of $19.0 million outstanding under this facility. The Company made its first $20 million sinking fund payment on the 10 1/2% Senior Notes on March 1, 1997. As of December 31, 1997, there was $78.8 million outstanding of the 10 1/2% Senior Notes. A second $20 million sinking fund payment was made by the Company on March 1, 1998, reducing the balance outstanding on such notes to $58.8 million. To finance land purchases, the Company may utilize, among its other sources, purchase money mortgage financing of which approximately $17.2 million was outstanding for this purpose at December 31, 1997, an increase of $12.7 million from December 31, 1996. Additionally, the Company has utilized joint venture structures over the past few years whereby these joint ventures have obtained secured construction financing. This type of structure minimizes the use of funds from the Company's Revolving Credit Facility. The Company plans to continue using this type of arrangement to finance the development of properties as opportunities arise. The Company paid approximately $4.1 million in dividends to its stockholders for the year ended December 31, 1997. Payments of dividends on the Company's common stock is within the discretion of the Company's Board of Directors and is dependent upon various factors, including the earnings, cash flow, capital requirements and operating and financial condition of the Company. Certain of the Company's senior credit and debt agreements impose restrictions on the amount of dividends the Company may pay. On January 27, 1998, the Board of Directors declared a quarterly cash dividend of $.04 per share of common stock. This dividend was paid on February 27, 1998 to shareholders of record on February 13, 1998. During the year ended December 31, 1997, the Company issued 292,100 shares of common stock pursuant to the exercise of stock options for aggregate proceeds of $1.7 million. Pursuant to the previously announced stock repurchase program, the Company repurchased 284,800 shares of its common stock for approximately $2.1 million during 1997. Since inception of the program, the Company has repurchased an aggregate of 1,285,750 shares of its common stock for approximately $8.3 million as of December 31, 1997, leaving a balance of approximately $11.7 million available to be repurchased. In June 1997, the Company issued $100 million of 8 1/2% Senior Notes due in 2007 (the "8 1/2% Senior Notes"). The notes were issued at a discount to yield approximately 8.6 percent. The 8 1/2% Senior Notes are subject to certain restrictive financial covenants, which, among other things, impose certain limitations on the ability of the Company to (i) incur additional indebtedness, (ii) create liens, (iii) make restricted payments, as defined, and (iv) sell assets. These notes are callable at the Company's option commencing June 15, 2002 at a premium of 104.25 percent of par value, with the call price reducing ratably to par on June 15, 2005. Net proceeds to the Company after offering expenses were approximately $96.9 million. The Company used the net proceeds to repay indebtedness outstanding under the Company's Revolving Credit Facility. 15 In February 1998, the Company issued $100 million of 8% Senior Notes due February 15, 2008 (the "8% Senior Notes"). The 8% Senior Notes were issued at a discount to yield approximately 8.1 percent. These notes are senior unsecured obligations of the Company and rank pari passu with the Company's other existing unsecured indebtedness. In addition, the 8% Senior Notes contain restrictive covenants similar to those in the 8 1/2% Senior Notes which, among other things, impose certain limitations on the ability of the Company to (i) incur additional indebtedness, (ii) create liens, (iii) make restricted payments, as defined, and (iv) sell assets. The 8% Senior Notes are redeemable at the option of the Company, in whole or in part, commencing February 15, 2003 at 104.00 percent of par, with the call price reducing ratably to par on February 15, 2006. Net proceeds to the Company after offering expenses were approximately $97.3 million. Approximately $54.3 million of the net proceeds were used to repay the indebtedness outstanding under the Revolving Credit Facility on the date of closing (February 10, 1998), with the balance of the net proceeds used or to be used (i) to fund a $20 million sinking fund payment due on March 1, 1998 on the Company's 10 1/2% Senior Notes, (ii) to repay an approximately $11.2 million trust deed note payable in March of 1998 and (iii) for general corporate purposes. The Company has no material commitments or off balance sheet financing arrangements that would tend to affect future liquidity. YEAR 2000 COMPLIANCE The Company has assessed the vulnerability of its computer systems to the "Year 2000 issue" and the cost of addressing Year 2000 compliance. Modifications and replacements of computer systems, primarily the replacement of computer software, to attain Year 2000 compliance have begun, and the Company expects to attain Year 2000 compliance and institute appropriate testing of its modifications and replacements before the Year 2000 date change. Presently, the Company does not believe that Year 2000 compliance will result in material investments by the Company, nor does the Company anticipate the Year 2000 issue will have material adverse effects on the business operations or financial performance of the Company. There can be no assurance, however, that the Year 2000 issue will not adversely affect the Company and its business. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 130 "Reporting Comprehensive Income" ("FAS 130") and Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). Both FAS 130 and 131 are required to be adopted by the Company for the year ended December 31, 1998. The Company believes the adoption of these statements will not have a material impact on its consolidated financial statements. 16 STATEMENT REGARDING FORWARD LOOKING DISCLOSURE This Form 10-K contains "forward looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which represent the Company's expectations or beliefs concerning future events, including, but not limited to, the following: statements regarding the price range of future homes constructed by the Company; statements regarding the inventory turn ratio and carrying costs on newer projects; statements regarding the impact of the proposed acquisition of The Olson Company; statements regarding the backlog of homes; statements regarding the adequacy of the Company's inventory of building sites; statements regarding the availability of building sites for purchase from joint ventures; statements regarding the time typically required to complete the construction phase of an increment of a project; statements regarding the sufficiency of the Company's cash provided by internally generated funds and outside borrowings; statements regarding future net new orders; statements regarding the gain or loss to be recognized by the Company from the planned disposition of Savings and the operating results of Savings for the period through disposition; statements regarding the future operations of Family Lending Services; statements regarding expected year 2000 compliance and the anticipated impact of the year 2000 issue on the Company's business operations and financial performance; statements regarding the intended use of proceeds of the Company's offering of the 8% Senior Notes; and statements regarding the expected impact of the adoption of accounting statements on the Company's consolidated financial statements. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward looking statements, including, without limitation, the following: change in the demand for new homes attributable to the cyclical and competitive nature of the homebuilding business; changes in general economic conditions; uncertainty in or changes in the continued availability of suitable undeveloped land at reasonable prices; adverse local market conditions; existing and changing governmental regulations, including regulations concerning environmental matters, the permitting process for home construction, savings and loan institutions and mortgage banking; increases in prevailing interest rates; the level of real estate taxes and energy costs; the cost and availability of materials and labor; the availability of construction financing and home mortgage financing attractive to the purchasers of homes; and inclement weather and other natural disasters. Results actually achieved thus may differ materially from expected results included in these and any other forward looking statements contained herein. 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Standard Pacific Corp.: We have audited the accompanying consolidated balance sheets of STANDARD PACIFIC CORP. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Standard Pacific Corp. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Orange County, California January 23, 1998 18 STANDARD PACIFIC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- Revenues................................... $ 584,571 $ 399,863 $ 346,263 Cost of sales.............................. 490,876 348,066 307,794 Noncash charge for impairment of long-lived assets.................................... -- -- 46,491 ---------- ---------- ---------- Gross margin............................. 93,695 51,797 (8,022) ---------- ---------- ---------- Selling, general and administrative ex- penses.................................... 52,141 37,351 34,873 Income from unconsolidated joint ventures.. 3,787 4,708 6,953 Interest expense........................... 4,981 7,142 1,860 Amortization of excess of cost over net as- sets acquired............................. 245 -- -- Other income............................... 931 936 555 ---------- ---------- ---------- Income (loss) from continuing operations before income taxes....................... 41,046 12,948 (37,247) (Provision) benefit for income taxes....... (17,070) (5,197) 14,890 ---------- ---------- ---------- Income (loss) from continuing operations... 23,976 7,751 (22,357) Income (loss) from discontinued operations, net of income taxes of $(1,034), $(408) and $3,636, respectively.................. 48 642 (5,006) Gain on disposal of discontinued operation, net of income taxes of $(51), $0 and $0, respectively.............................. 3,302 -- -- ---------- ---------- ---------- Net Income (Loss).......................... $ 27,326 $ 8,393 $ (27,363) ========== ========== ========== Basic Net Income (Loss) Per Share: Income (loss) per share from continuing operations.............................. $ 0.82 $ 0.26 $ (0.73) Income (loss) per share from discontinued operations, net of income taxes......... 0.00 0.02 (0.17) Gain on disposal of discontinued operation, net of income taxes.......... 0.11 -- -- ---------- ---------- ---------- Net Income (Loss) Per Share.............. $ 0.93 $ 0.28 $ (0.90) ========== ========== ========== Weighted average common shares outstanding............................. 29,504,477 30,000,492 30,488,676 ========== ========== ========== Diluted Net Income (Loss) Per Share: Income (loss) per share from continuing operations.............................. $ 0.81 $ 0.26 $ (0.73) Income (loss) per share from discontinued operations, net of income taxes......... 0.00 0.02 (0.17) Gain on disposal of discontinued operation, net of income taxes.......... 0.11 -- -- ---------- ---------- ---------- Net Income (Loss) Per Share.............. $ 0.92 $ 0.28 $ (0.90) ========== ========== ========== Weighted average common and diluted shares outstanding...................... 29,807,702 30,011,595 30,488,676 ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. 19 STANDARD PACIFIC CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
AT DECEMBER 31, ----------------- 1997 1996 -------- -------- ASSETS Cash and equivalents..................................... $ 8,381 $ 5,252 Investment securities held to maturity................... -- 5,329 Mortgage notes receivable and accrued interest........... 12,095 3,741 Other notes and accounts receivable, net................. 11,686 8,648 Inventories: Real estate in process of development and completed model homes........................................... 448,951 363,718 Real estate held for sale.............................. 2,897 8,927 Property and equipment, net of accumulated depreciation and amortization of $3,570 and $3,320, respectively..... 2,515 1,741 Investments in and advances to unconsolidated joint ventures................................................ 26,217 885 Deferred income taxes.................................... 12,136 16,481 Other assets............................................. 7,455 6,325 Excess of cost over net assets acquired, net ............ 6,605 -- -------- -------- Total assets of continuing operations.................... 538,938 421,047 -------- -------- Net assets of discontinued operations.................... 8,727 28,067 -------- -------- Total Assets........................................... $547,665 $449,114 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable and accrued expenses................. $ 49,582 $ 26,958 Unsecured notes payable............................... 19,000 57,300 Trust deed notes payable.............................. 17,174 4,467 10 1/2% senior notes due 2000......................... 78,800 100,000 8 1/2% senior notes due 2007, net..................... 99,331 -- -------- -------- Total Liabilities..................................... 263,887 188,725 -------- -------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued.............................. -- -- Common stock, $.01 par value; 100,000,000 shares authorized; 29,637,281 and 29,629,981 shares outstanding at December 31, 1997 and 1996, respectively......................................... 296 296 Paid-in capital....................................... 283,525 283,331 Accumulated deficit................................... (43) (23,238) -------- -------- Total stockholders' equity............................ 283,778 260,389 -------- -------- Total Liabilities and Stockholders' Equity.......... $547,665 $449,114 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. 20 STANDARD PACIFIC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON RETAINED NUMBER OF STOCK EARNINGS YEARS ENDED DECEMBER 31, 1995, 1996 COMMON PAR PAID-IN (ACCUMULATED AND 1997 SHARES VALUE CAPITAL DEFICIT) - ------------------------------------- ---------- ------ -------- ------------ BALANCE, DECEMBER 31, 1994........... 30,621,931 $306 $289,447 $ 2,990 Exercise of stock options and related income tax benefit.................. 9,000 -- 64 -- Repurchase of common shares.......... (570,650) (5) (3,856) -- Cash dividends declared ($.12 per share).............................. -- -- -- (3,657) Net (loss)........................... -- -- -- (27,363) ---------- ---- -------- -------- BALANCE, DECEMBER 31, 1995........... 30,060,281 301 285,655 (28,030) Repurchase of common shares.......... (430,300) (5) (2,324) -- Cash dividends declared ($.12 per share).............................. -- -- -- (3,601) Net income........................... -- -- -- 8,393 ---------- ---- -------- -------- BALANCE, DECEMBER 31, 1996........... 29,629,981 296 283,331 (23,238) Exercise of stock options and related income tax benefit.................. 292,100 3 2,315 -- Repurchase of common shares.......... (284,800) (3) (2,121) -- Cash dividends declared ($.14 per share) ............................. -- -- -- (4,131) Net income........................... -- -- -- 27,326 ---------- ---- -------- -------- BALANCE, DECEMBER 31, 1997........... 29,637,281 $296 $283,525 $ (43) ========== ==== ======== ========
The accompanying notes are an integral part of these consolidated statements. 21 STANDARD PACIFIC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................... $ 27,326 $ 8,393 $(27,363) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations: Discontinued operations....................... (3,350) (642) 5,006 Noncash charge for impairment of long-lived assets....................................... -- -- 46,491 Depreciation and amortization................. 586 555 231 Amortization of excess of cost over net assets acquired..................................... 245 -- -- Changes in cash and equivalents due to: Inventories................................. (615) (5,376) 52,459 Receivables and accrued interest............ (1,804) (992) 5,988 Investment in and advances to unconsolidated joint ventures............................. (25,332) 3,576 (3,015) Accounts payable and accrued expenses....... 21,083 2,797 (4,665) Deferred income taxes....................... 4,345 1,124 (15,805) Other, net.................................. 4,555 299 206 -------- -------- -------- Net cash provided by (used in) continuing operations..................................... 27,039 9,734 59,533 Net cash provided by (used in) discontinued operations..................................... 37,088 (22,785) 21,371 -------- -------- -------- Net cash provided by (used in) operating activities..................................... 64,127 (13,051) 80,904 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash paid for acquisition................... (65,842) -- -- Net additions to property and equipment......... (1,264) (242) (183) Sales (purchases) of investment securities...... 5,329 81 (1,539) Proceeds from the sale of discontinued operations..................................... 8,379 -- -- -------- -------- -------- Net cash provided by (used in) investing activities..................................... (53,398) (161) (1,722) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from (payments on) bank lines of credit and term loans.......................... (38,300) 8,800 (37,750) Net proceeds from the issuance of 8 1/2% senior notes.......................................... 96,931 -- -- Principal payments on senior notes and trust deed notes payable............................. (27,707) (11,021) (12,885) Dividends....................................... (4,131) (3,601) (3,657) Repurchase of common shares..................... (2,124) (2,329) (3,861) Proceeds from exercise of stock options......... 1,705 -- 64 -------- -------- -------- Net cash provided by (used in) financing activities..................................... 26,374 (8,151) (58,089) -------- -------- -------- Net increase (decrease) in cash and equivalents. 37,103 (21,363) 21,093 Cash and equivalents at beginning of period..... 16,234 37,597 16,504 -------- -------- -------- Cash and equivalents at end of period........... $ 53,337 $ 16,234 $ 37,597 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. 22 STANDARD PACIFIC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 1995 ------- ------- ------- SUMMARY OF CASH BALANCES: Continuing operations ................................. $ 8,381 $ 5,252 $ 290 Discontinued operations................................ 44,956 10,982 37,307 ------- ------- ------- $53,337 $16,234 $37,597 ======= ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest--continuing operations.................... $17,026 $16,687 $19,200 Income taxes....................................... 15,500 1,477 530 SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES: Land acquisitions financed by purchase money trust deeds............................................... $19,214 $ 635 $ 9,444 Expenses capitalized in connection with the issuance of the 8 1/2% senior notes due 2007................. 2,377 -- --
The accompanying notes are an integral part of these consolidated statements. 23 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. COMPANY ORGANIZATION AND OPERATIONS Standard Pacific Corp., a Delaware corporation (hereinafter referred to as the "Company"), operates primarily as a geographical diversified builder of single-family homes for use as primary residences with operations throughout the major metropolitan markets in California and Texas. Approximately 79 percent of the Company's home deliveries (including the unconsolidated joint ventures) were in California for the year ended December 31, 1997. There have been periods of time in California where economic growth has slowed and the average sales price of homes in certain areas in California in which the Company does business have declined. There can be no assurance that home sales prices will not decline in the future. The Company's business is affected by national, world and local economic conditions and events and the effect such conditions and events have on the markets it serves in California and Texas and in particular by the level of mortgage interest rates and consumer confidence in those regions. The Company cannot predict whether interest rates will be at levels attractive to prospective homebuyers. If interest rates increase, and in particular mortgage interest rates, the Company's operating results could be adversely impacted. In August 1997, the Company formed Family Lending Services, Inc. ("Family Lending Services"), which will operate as a mortgage banking subsidiary of the Company, offering mortgage financing to the Company's home buyers and others. Certain assets were contributed from Standard Pacific Savings, F.A. ("Savings") to capitalize this entity. Family Lending Services is in the process of obtaining required regulatory approvals and mortgage warehouse financing and is currently expected to begin offering mortgage financing to home buyers in the second quarter of 1998. Accordingly, the financial position and related results of operations of Family Lending Services for the year ended December 31, 1997 have been reflected as continuing operations in the accompanying consolidated balance sheets and statements of operations. The consolidated financial statements also include Standard Pacific Savings, F.A., a federally chartered savings and loan institution, and Panel Concepts, Inc., an office furniture manufacturing subsidiary, which have been treated as discontinued operations (See Note 12). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in unconsolidated joint ventures in which the Company has less than a controlling interest are accounted for using the equity method. b. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. c. Cash and Equivalents For purposes of the consolidated statements of cash flows, cash and equivalents include cash on hand, demand deposits, and all highly liquid short-term investments, including interest bearing securities purchased with a remaining maturity of three months or less. 24 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) d. Real Estate Inventories For real estate under development the Company capitalizes direct carrying costs, including interest, property taxes and related development costs. Field construction supervision and related direct overhead are also included in the capitalized cost of real estate inventories. General and administrative costs are expensed as incurred. Effective December 31, 1995, the Company adopted the provisions of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" (FAS 121). FAS 121 requires long-lived assets, including real estate inventories, that are expected to be held and used in operations to be carried at the lower of cost or, if impaired, the fair value of the asset, rather than the net realizable value. Long-lived assets to be disposed of should be reported at the lower of carrying amount or fair value less cost to sell. In evaluating long-lived assets held for use, an impairment loss is recognized if the sum of the expected future cash flows (undiscounted and without interest charge) is less than the carrying amount of the asset. Once a determination has been made that an impairment loss should be recognized for real estate inventories expected to be held and used, various assumptions and estimates are used to determine fair value including, among others, estimated costs of construction, development and marketing, sales absorption rates, anticipated sales prices and carrying costs. The calculation of the impairment loss is based on estimated future cash flows which are calculated to include an appropriate return and interest. The estimates used to determine the impairment adjustment could change in the near term as the economy in the Company's key markets change. The effect of the adoption of FAS 121, plus the effects of continued adverse trends experienced during 1995 in certain of the geographic markets in which the Company operates, on the values of certain of the Company's land holdings, particularly in San Diego county, resulted in a pretax noncash charge of $46.5 million for the year ended December 31, 1995. These adverse developments included, among other things, record high foreclosure rates, declines in median home prices and continued anemic economic recovery. e. Capitalization of Interest The Company follows the practice of capitalizing interest on real estate inventories during the period of development in accordance with Financial Accounting Standards No. 34, "Capitalization of Interest Cost." Interest capitalized as a cost of real estate under development is included in cost of sales as related units are sold. The following is a summary of interest capitalized and expensed from continuing operations for the following periods:
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 1995 ------- ------- ------- Total interest incurred during the period........... $17,026 $16,687 $19,200 Less: Interest capitalized as a cost of real estate under development.................................. 12,045 9,545 17,340 ------- ------- ------- Interest expense.................................... $ 4,981 $ 7,142 $ 1,860 ======= ======= ======= Interest previously capitalized as a cost of real estate under development, included in cost of sales.............................................. $23,475 $16,920 $27,638(1) ======= ======= ======= Capitalized interest in ending inventories.......... $13,712 $25,142 $32,517 ======= ======= =======
- -------- (1) Excludes $11.6 million of interest included in the FAS 121 adjustment. 25 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) f. Property and Equipment Property and equipment is recorded at cost. Depreciation and amortization is recorded using the straight-line method over the estimated useful lives of the assets. g. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This statement requires a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered. h. Excess of Cost Over Net Assets Acquired The excess amount paid for a business acquisition over the net fair value of assets acquired and liabilities assumed has been capitalized in the accompanying consolidated balance sheets and is being amortized on a straight- line basis over seven years. Amortization expense for the year ended December 31, 1997 was $245,000. (See Note 4) i. Revenue Recognition Revenues of residential housing are recorded after construction is completed, required down payments are received and title passes. j. Warranty Costs Estimated future warranty costs are charged to cost of sales in the period when the revenues from home closings are recognized. k. Net Income Per Share Effective December 31, 1997 the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings per Share" (FAS 128). This statement requires the presentation of both basic and diluted net income per share for financial statement purposes. Basic net income per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted net income per share includes the effect of the potential shares outstanding, including dilutive stock options using the treasury stock method. The table below reconciles the components of the basic net income per share calculation to diluted net income per share.
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 1997 1996 1995 ------------------------ ----------------------- --------------------------- INCOME SHARES EPS INCOME SHARES EPS INCOME SHARES EPS ------- ---------- ----- ------ ---------- ----- -------- ---------- ------ Basic Net Income (Loss) Per Share: Income (loss) available to common stockholders before discontinued operations............ $23,976 29,504,477 $0.82 $7,751 30,000,492 $0.26 $(22,357) 30,488,676 $(0.73) Effect of Dilutive Securities: Stock options.......... -- 303,225 -- 11,103 -- -- ------- ---------- ------ ---------- -------- ---------- Diluted Net Income (Loss) Per Share: $23,976 29,807,702 $0.81 $7,751 30,011,595 $0.26 $(22,357) 30,488,676 $(0.73) ======= ========== ===== ====== ========== ===== ======== ========== ======
26 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) In January 1998, the Company granted an additional 400,000 stock options which were not considered in the calculation above for 1997, however, the effect of these stock options would not have had an impact on the above calculation as they were antidilutive for purposes of computing diluted net income per share. l. Stock-Based Compensation The Company accounts for its stock-based compensation plan using the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). Under the provisions of FAS 123, companies can elect to account for stock-based compensation plans using a fair-value-based method or continue measuring compensation expense for those plans using the intrinsic value method prescribed in APB 25. FAS 123 requires that companies electing to continue using the intrinsic value method must make pro forma disclosures of net income and earnings per share as if the fair-value-based method of accounting had been applied. Effective December 31, 1996, the Company adopted FAS 123 for financial statement disclosure purposes only and accordingly, the adoption had no impact on the Company's results of operations or financial position for the year then ended. m. Reclassifications Effective January 1, 1997, the Company changed its presentation of selling costs in its consolidated statements of operations whereby selling costs are now combined with general and administrative expenses. This presentation is consistent with industry practice. Previously, the Company included these costs as a component of cost of sales. The Company reclassified the prior period amounts to conform with the 1997 presentation. Additionally, certain other items in prior period financial statements have been reclassified to conform with current year presentation. 3. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES Summarized financial information related to the Company's joint ventures accounted for under the equity method are as follows:
AT DECEMBER 31, --------------- 1997 1996 ------- ------- Assets: Cash...................................................... $ 5,545 $ 545 Real estate in process of development and completed model homes.................................................... 74,835 9,809 Other assets.............................................. 1,319 3,355 ------- ------- $81,699 $13,709 ======= ======= Liabilities and Equity: Accounts payable and accrued expenses..................... $ 5,248 $ 3,409 Construction loans payable................................ 17,442 7,153 Equity.................................................... 59,009 3,147 ------- ------- $81,699 $13,709 ======= =======
27 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The Company's share of equity shown above is approximately $23.5 million and $943,000 at December 31, 1997 and 1996, respectively.
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 1995 ------- ------- ------- Revenues............................................. $24,427 $32,168 $46,166 Cost of revenues..................................... 17,591 23,817 32,881 ------- ------- ------- Net earnings of joint ventures....................... $ 6,836 $ 8,351 $13,285 ======= ======= =======
The Company's share of earnings in the joint ventures detailed above varies, but in no case is its share of earnings greater than 50 percent. Additionally, the Company's ownership interests in the joint ventures varies, but in no case does it exceed 50 percent. In addition, the sole purpose of two of the joint ventures which the Company is party to is to develop finished lots whereby the Company will purchase the lots from the joint venture to construct homes thereon. The Company does not anticipate recording any income or loss from these two joint ventures. 4. ACQUISITION On September 30, 1997, the Company acquired all of the outstanding common stock of Duc Development Company ("Duc"), a privately held northern California homebuilding company, for cash consideration of approximately $16 million of which approximately $5 million is contingent consideration which is to be paid upon the Company obtaining entitlement approvals on a certain parcel of land. Upon such payment, the amount will be recorded as real estate inventory. In connection with this acquisition, the Company acquired certain other real estate assets related to Duc's operations for approximately $55 million in cash and the assumption of approximately $8 million of debt. The acquisition has been accounted for as a purchase, and accordingly, the purchase price has been allocated to the net assets acquired based upon their estimated fair market values as of the date of acquisition. The excess of the purchase price over the estimated fair value of net assets acquired totaled approximately $6.85 million, which has been recorded as excess of cost over net assets acquired in the accompanying consolidated balance sheets and is being amortized on a straight-line basis over seven years. In addition, operations for Duc are included in the accompanying statement of operations commencing October 1, 1997. The pro forma effect of including Duc's operations in the Company's consolidated operating results since January 1, 1997 is not presented, as the impact is not material. 5. UNSECURED NOTES PAYABLE AND TRUST DEED NOTES PAYABLE a. Unsecured Notes Payable to Banks In August 1997, the Company and its bank group amended the unsecured Revolving Credit Facility (the "Facility") to, among other things, increase the commitment to $275 million, increase the term of the Facility from three years to four years and reduce the cost of borrowings and other fees. The Facility has a current maturity date of July 31, 2001. The Facility contains covenants which require, among other things, the maintenance of certain amounts of tangible stockholders' equity, the maintenance of debt-to-equity ratios, and minimum interest coverage ratio provisions, as defined. The Facility also contains provisions which may, in certain circumstances, limit the amount the Company may borrow under the credit facility. At December 31, 1997, the Company had borrowings of $19.0 million outstanding under this Facility. Interest rates charged under this Facility primarily include Eurodollar and prime rate pricing options. In addition to fees charged on the 28 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) commitment and unused portion of the Facility, this Facility also requires the Company to maintain a compensating balance, as defined. As of December 31, 1997, and throughout the year, the Company was in compliance with the covenants of the Revolving Credit Facility. b. Trust Deed Notes Payable At December 31, 1997 and 1996, trust deed notes payable primarily consist of trust deeds on land purchases. At December 31, 1997, the weighted average interest rate on these trust deeds was approximately 8.0 percent. c. Borrowings and Maturities The following summarizes the borrowings during the three years ended December 31, 1997 for the unsecured notes payable and trust deed notes payable:
1997 1996 1995 ------- ------- -------- Maximum borrowings outstanding during year at month end...................................... $98,295 $91,299 $101,947 Average outstanding balance during the year..... $45,395 $78,552 $ 86,377 Weighted average interest rate for the year..... 7.3% 6.8% 7.5% Weighted average interest rate on borrowings outstanding at year end........................ 7.9% 7.1% 6.8%
Maturities of the trust deed notes payable and the 8 1/2% and 10 1/2% Senior Notes (see Note 6 below) are as follows:
YEAR ENDED DECEMBER 31, ----------------------- 1998............................................................. $ 34,836 1999............................................................. 22,338 2000............................................................. 38,800 2001............................................................. -- 2002............................................................. -- Thereafter....................................................... 99,331 -------- $195,305 ========
6. SENIOR NOTES In 1993, the Company issued $100 million principal amount of its 10 1/2% Senior Notes due March 1, 2000 (the "10 1/2% Senior Notes"). Interest is due and payable on March 1 and September 1 of each year. The 10 1/2% Senior Notes are not redeemable at the option of the Company prior to maturity. The Company is required to make annual mandatory sinking fund payments sufficient to retire 20 percent of the original aggregate principal amount of the Notes ($20 million per year) commencing on March 1, 1997, at a redemption price of 100 percent of the principal amount, with the balance of the notes ($38.8 million) retired on March 1, 2000. The Company made its first $20 million sinking fund payment on the 10 1/2% Senior Notes on March 1, 1997. In June 1997, the Company issued $100 million of 8 1/2% Senior Notes due June 15, 2007 (the "8 1/2% Senior Notes"). The 8 1/2% Senior Notes were issued at a discount to yield approximately 8.6 percent and have been reflected net of the unamortized discount in the accompanying consolidated balance sheets. Interest is due and payable on June 15 and December 15 of each year until maturity. These notes are redeemable at the option of the Company, in whole or in part, commencing June 15, 2002 at a price of 104.25 percent of par value, with the call price reducing ratably to par on June 15, 2005. Net proceeds to the Company after offering expenses were approximately $96.9 million. 29 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Both the 10 1/2% and 8 1/2% Senior Notes (the "Notes") are senior unsecured obligations of the Company and rank pari passu with the Company's other existing senior unsecured indebtedness. The Company will, under certain circumstances, be obligated to make an offer to purchase a portion of both the 10 1/2% and 8 1/2% Senior Notes in the event of the Company's failure to maintain a minimum consolidated net worth, as defined, and under certain other circumstances. In addition, the Notes contain other restrictive covenants which, among other things, impose certain limitations on the ability of the Company to (i) incur additional indebtedness, (ii) create liens, (iii) make restricted payments, as defined, and (iv) sell assets. As of December 31, 1997, the Company was in compliance with the covenants of both the 10 1/2% and 8 1/2% Senior Notes. 7. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate: Cash and Equivalents--The carrying amount is a reasonable estimate of fair value. These assets primarily consist of short term investments and demand deposits. Investment Securities Held to Maturity--These investments for 1996 consist primarily of U.S. government and corporate debt securities which are publicly traded. The fair value of these issues is based on their quoted market prices at year end. Revolving Credit Facility--The carrying amounts of the revolving credit obligations approximate market value because of the frequency of repricing the borrowings (usually 7 to 90 day maturities). Trust Deed Notes Payable--These notes are primarily for purchase money deeds of trust on land acquired. These notes have maturities ranging from 3 months to three years. The rates of interest paid on these notes approximate the current rates available for secured real estate financing with similar terms and maturities, therefore, carrying amounts approximate fair value. 10 1/2% Senior Notes due 2000--This issue is publicly traded on the New York Stock Exchange. Consequently, the fair value of this issue is based on its quoted market price at year end. 8 1/2% Senior Notes due 2007--This issue is also publicly traded on the New York Stock Exchange. As a result, the fair value of this issue is based on its quoted market price at year end. The estimated fair values of the Company's financial instruments from continuing operations are as follows:
AT DECEMBER 31, ----------------------------------- 1997 1996 ----------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Financial Assets: Cash and equivalents.................. $ 8,381 $ 8,381 $ 5,252 $ 5,252 Investment securities held to maturity............................. -- -- 5,329 5,379 Financial Liabilities: Revolving credit facility............. $19,000 $ 19,000 $ 57,300 $ 57,300 Trust deed notes payable.............. 17,174 17,174 4,467 4,467 10 1/2% senior notes due 2000......... 78,800 82,669 100,000 103,375 8 1/2% senior notes due 2007.......... 99,331 102,990 -- --
30 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 8. COMMITMENTS AND CONTINGENCIES The Company leases office facilities under noncancelable operating leases. Generally, the Company is required to pay taxes and insurance and maintain the assets under such operating leases. Future minimum rental payments on operating leases having an initial term in excess of one year as of December 31, 1997, including Savings, are as follows: 1998.............................................................. $ 990 1999.............................................................. 950 2000.............................................................. 954 2001.............................................................. 859 2002.............................................................. 344 Thereafter........................................................ 210 ------ Subtotal........................................................ 4,307 Less--Sublease income............................................. (323) ------ Net rental obligations.......................................... $3,984 ======
Rent expense, net of sublease income, under noncancelable operating leases for the three years ended December 31, 1997 was approximately $1.3 million, $1.4 million and $1.4 million, respectively. The Company and certain of its subsidiaries are parties to claims and litigation proceedings arising in the normal course of business. Although the legal responsibility and financial impact with respect to certain claims and litigation cannot presently be ascertained, the Company does not believe that these matters will result in the payment by the Company of monetary damages, net of any applicable insurance proceeds, that, in the aggregate, would be material in relation to the consolidated financial position of the Company. It is reasonably possible that the reserves provided for by the Company with respect to such claims and litigation could change in the near term. 9. INCOME TAXES The Company's provision (benefit) for income taxes from continuing operations includes the following components:
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 1995 ------- ------ -------- Current: Federal.......................................... $12,909 $ 766 $ 3,301 State............................................ 3,471 209 991 ------- ------ -------- 16,380 975 4,292 ------- ------ -------- Deferred: Federal.......................................... 535 3,254 (14,731) State............................................ 155 968 (4,451) ------- ------ -------- 690 4,222 (19,182) ------- ------ -------- Total Provision (Benefit).......................... $17,070 $5,197 $(14,890) ======= ====== ========
31 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The components of the Company's deferred income tax asset (liability) from continuing operations as of December 31, 1997 and 1996 are as follows:
1997 1996 ------- ------- Inventory adjustments...................................... $10,610 $12,093 Financial accruals......................................... 5,885 4,144 Nondeductible purchase price............................... (4,613) -- Other...................................................... 254 244 ------- ------- $12,136 $16,481 ======= =======
At December 31, 1997, the Company has a consolidated net deferred tax asset of approximately $12.1 million reflecting the balance of the benefit created primarily as a result of the $46.5 million noncash charge taken during 1995 related to the impairment of long-lived assets. A significant portion of this asset's realization is dependent upon the Company's ability to generate sufficient taxable income in future years. Although realization is not assured, management believes it is more likely than not that the net deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced or if tax rates are lowered. The effective tax rate differs from the Federal statutory rate of 35 percent for 1997 and 34 percent for 1996 and 1995 due to the following items:
YEAR ENDED DECEMBER 31, -------------------------- 1997 1996 1995 ------- ------- -------- Financial income (loss) from continuing operations before income taxes............... $41,046 $12,948 $(37,247) ======= ======= ======== Provision (benefit) for income taxes at statutory rate............................... $14,366 $ 4,402 $(12,664) Increases (decreases) in tax resulting from: State income taxes, net..................... 2,481 796 (2,286) Other....................................... 223 (1) 60 ------- ------- -------- Provision (benefit) for income taxes.......... $17,070 $ 5,197 $(14,890) ======= ======= ======== Effective tax (benefit) rate.................. 41.6% 40.1% (40.0)% ======= ======= ========
10. STOCK OPTION PLAN In 1991, the Company adopted the 1991 Employee Stock Incentive Plan (the "Plan") pursuant to which officers, directors and employees of the Company are eligible to receive options to purchase common stock of the Company. Under the Plan the maximum number of shares of Company stock that may be issued pursuant to awards granted is one million. On May 13, 1997, the shareholders of the Company approved the 1997 Stock Incentive Plan (the "1997 Plan"). Under the 1997 Plan, the maximum number of shares of Company stock that may be issued is two million. Options are typically granted to purchase shares at prices equal to the fair market value of the shares at the date of grant. The options typically vest over a one to five year period and are generally exercisable at various dates over one to 10 year periods. When the options are exercised, the proceeds are credited to equity along with the related income tax benefits, if any. 32 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following is a summary of the transactions relating to the two respective Plans for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995 ------------------- ------------------ ----------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE --------- -------- -------- -------- ------- -------- Options, beginning of year................... 928,590 $ 6.30 721,590 $9.73 771,990 $9.80 Granted................. 343,000 10.70 365,000 6.35 20,000 5.75 Exercised............... (292,100) 5.81 -- -- (9,000) 6.88 Canceled................ (20,500) 7.83 (158,000) 9.48 (61,400) 9.76 --------- ------ -------- ----- ------- ----- Outstanding, end of year................... 958,990 $ 7.99 928,590 $6.30 721,590 $9.73 ========= ====== ======== ===== ======= ===== Options exercisable at end of year............ 360,990 588,590 671,590 ========= ======== ======= Options available for future grant........... 1,685,275 7,775 214,775 ========= ======== =======
In January 1998, the Company granted an additional 400,000 stock options pursuant to the 1997 Plan. During the fourth quarter of 1996 the Company repriced 326,100 options which were previously granted to nonexecutive employees. The new price represents the fair market value of the shares at the date of repricing. Additionally, the weighted average exercise price for all options outstanding as of December 31, 1996 reflects the repriced options at their new exercise price. The following information is provided pursuant to the requirements of FAS 123. The fair value of each option granted during the three years in the period ended December 31, 1997 is estimated using the Black--Scholes option-pricing model on the date of grant using the following weighted average assumptions:
1997 1996 1995 ------- ------- ------- Dividend yield.................................... 1.31% 2.0% 2.1% Expected volatility............................... 43.80% 46.30% 53.46% Risk-free interest rate........................... 6.17% 6.12% 6.70% Expected life..................................... 5 years 5 years 5 years
The 958,990 options outstanding as of December 31, 1997 have exercise prices between $5.38 and $13.75, with a weighted average exercise price of $7.99 and a weighted average remaining contractual life of 7.72 years. As of December 31, 1997, 360,990 of these options are exercisable with a weighted average exercise price of $6.47. The weighted average fair value of options granted during the years ended December 31, 1997, 1996 and 1995 was $6.55, $2.75 and $2.66, respectively. 33 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) During the years ended December 31, 1997, 1996 and 1995, no compensation expense was recognized related to the stock options granted, however, had compensation cost been determined consistent with FAS 123 for the Company's 1997, 1996 and 1995 grants for its stock-based compensation plan, the Company's net income (loss), and diluted net income (loss) per share for the years ended December 31, 1997, 1996 and 1995 would approximate the pro forma amounts below:
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1997 1996 1995 --------------------- --------------------- --------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- ----------- --------- Net income (loss)....... $27,326 $27,100 $8,393 $7,619 $(27,363) $(27,394) Diluted net income (loss) per common share.................. $ .92 $ .91 $ .28 $ .25 $ (.90) $ (.90)
The effects of applying FAS 123 in this pro forma disclosure are not indicative of future amounts. 11. STOCKHOLDER RIGHTS PLAN AND COMMON STOCK REPURCHASE PLAN The Company has a stockholder rights agreement (the "Agreement") in place. Under the Agreement, one right will be granted for each share of the Company's outstanding common stock. Each right entitles the holder, in certain takeover situations, as defined, and after paying the exercise price (currently $40), to purchase Company common stock having a market value equal to two times the exercise price. Also, if the Company is merged into another corporation, or if 50 percent or more of the Company's assets are sold, the rightholders may be entitled, upon payment of the exercise price, to buy common shares of the acquiring corporation at a 50 percent discount from the then current market value. In either situation, these rights are not available to the acquiring party. However, these exercise features will not be activated if the acquiring party makes an offer to acquire all of the Company's outstanding shares at a price which is judged by the Board of Directors to be fair to all Company stockholders. The rights may be redeemed by the Company under certain circumstances at the rate of $.01 per right. The rights will expire on December 31, 2001, unless earlier redeemed or exchanged. In July 1995, the Board of Directors of the Company authorized the repurchase of up to $10 million of the Company's common stock. In January 1997, the Board increased the repurchase limit to $20 million. For the year ended December 31, 1997, the Company repurchased 284,800 shares of its common stock for an aggregate price of $2.1 million. Since July 1995, the Company has repurchased an aggregate of 1,285,750 shares of its common stock for approximately $8.3 million through the year ended December 31, 1997. 12. DISCONTINUED OPERATIONS In May 1997, the Company's Board of Directors adopted a plan of disposition (the "Plan") for the Company's savings and loan subsidiary. Pursuant to the Plan, the Company sold substantially all of Savings' mortgage loan portfolio in June 1997. The proceeds from the sale of the mortgages were used to pay off substantially all of the outstanding balances of Federal Home Loan Bank advances with the remaining amount temporarily invested until the savings deposits are sold along with Savings' remaining assets. In June 1997, the Company also entered into a definitive agreement to sell the remainder of Savings' business, including Savings' charter. The definitive agreement was subject to a number of conditions, including, approval of the transaction by the Office of Thrift Supervision ("OTS"). As a result of the failure of the OTS to approve the transaction prior to the definitive agreement's termination date, the definitive agreement terminated on January 31, 1998. The Company plans to continue pursuing a disposition strategy with respect to Savings and, therefore, Savings has been accounted for as a discontinued operation and the results of its operations have been segregated in the accompanying consolidated financial statements. Management currently estimates that both the disposition of 34 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Savings under the Plan and the operating results of Savings for the period through the disposition will not result in a significant gain or loss to the Company. In November 1997, the Company entered into a definitive agreement to sell all of the outstanding stock of Panel Concepts, Inc. ("Panel") to a third party which closed December 1, 1997. A net gain of approximately $3.3 million has been reflected in the accompanying consolidated results of operations. Proceeds from the sale of Panel were approximately $9.5 million before transaction and other related costs. In addition, certain non-operating assets of Panel totaling approximately $9 million were distributed to the Company prior to the closing. Panel has also been accounted for as a discontinued operation and, accordingly, the results of its operations have been segregated in the accompanying consolidated statements of operations. Additionally, the assets and liabilities of both Savings and Panel have been classified in the accompanying consolidated balance sheets as "Net assets of discontinued operations." Interest income and product sales from these discontinued operations aggregated $31,784,000, $39,383,000, and $40,982,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The components of net assets of discontinued operations included in the consolidated balance sheets at December 31, 1997 and 1996 are as follows:
AT DECEMBER 31, ---------------- 1997 1996 ------- -------- (DOLLARS IN THOUSANDS) ASSETS Cash and equivalents...................................... $44,956 $ 10,982 Accounts receivable, net.................................. -- 2,425 Investment securities available for sale.................. 22,559 42,440 Mortgage notes receivable and accrued interest, net....... 317 199,135 Manufacturing inventories................................. -- 1,432 Property and equipment, net of accumulated depreciation and amortization of $598 and $4,189, respectively........ 98 4,527 Real estate acquired in settlement of loans, net.......... -- 2,079 Deferred income taxes..................................... 1,273 1,581 Investment in FHLB stock.................................. 8,465 7,958 Other assets.............................................. 108 1,813 ------- -------- Total assets--discontinued operations................... $77,776 $274,372 ------- -------- LIABILITIES Savings accounts.......................................... $50,230 $132,813 FHLB advances............................................. 18,000 109,000 Accounts payable and accrued expenses..................... 819 4,492 ------- -------- Total liabilities--discontinued operations.............. 69,049 246,305 ------- -------- Net assets of discontinued operations..................... $ 8,727 $ 28,067 ======= ========
35 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 13. RESULTS OF QUARTERLY OPERATIONS (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL(1) -------- -------- -------- -------- -------- 1997: Revenues..................... $111,303 $140,578 $177,150 $155,541 $584,571 Income from continuing operations before taxes..... 5,146 7,955 11,660 16,285 41,046 Income (loss) from discontinued operations, net of income taxes............. 484 (24) 367 (779) 48 Gain on disposal of discontinued operation, net of income taxes............. -- -- -- 3,302 3,302 Net income................... $ 3,517 $ 4,667 $ 7,241 $ 11,901 $ 27,326 ======== ======== ======== ======== ======== Diluted Net Income Per Share: Income per share from continuing operations....... $ 0.10 $ 0.16 $ 0.23 $ 0.32 $ 0.81 Income (loss) per share from discontinued operations, net of income taxes............. 0.02 0.00 0.01 (0.03) 0.00 Gain per share on disposal of discontinued operation, net of income taxes............. -- -- -- 0.11 0.11 -------- -------- -------- -------- -------- Net income per share......... $ 0.12 $ 0.16 $ 0.24 $ 0.40 $ 0.92 ======== ======== ======== ======== ======== 1996: Revenues..................... $ 61,584 $101,727 $105,417 $131,135 $399,863 Income from continuing operations before taxes..... 715 2,902 4,158 5,173 12,948 Income (loss) from discontinued operations, net of income taxes............. 144 478 (472) 492 642 Net income................... $ 573 $ 2,211 $ 2,025 $ 3,584 $ 8,393 ======== ======== ======== ======== ======== Diluted Net Income Per Share: Income per share from continuing operations....... $ 0.02 $ 0.06 $ 0.08 $ 0.10 $ 0.26 Income (loss) per share from discontinued operations, net of income taxes............. -- 0.01 (0.01) 0.02 0.02 -------- -------- -------- -------- -------- Net income per share......... $ 0.02 $ 0.07 $ 0.07 $ 0.12 $ 0.28 ======== ======== ======== ======== ========
- -------- (1) Some amounts do not add across due to rounding differences in quarterly amounts. 14. SUBSEQUENT EVENT (UNAUDITED) In February 1998, the Company issued $100 million of 8% Senior Notes due February 15, 2008 (the "8% Senior Notes"). The 8% Senior Notes were issued at a discount to yield approximately 8.1 percent. Interest is due and payable on February 15 and August 15 of each year until maturity. These notes are redeemable at the option of the Company, in whole or in part, commencing February 15, 2003 at 104.00 percent of par, with the call price reducing ratably to par on February 15, 2006. Net proceeds to the Company after offering expenses were approximately $97.3 million. Approximately $54.3 million of the net proceeds was used to repay the indebtedness outstanding under the Revolving Credit Facility on the date of closing (February 10, 1998), with the balance of the net proceeds to be used (i) to fund a $20 million sinking fund payment due on March 1, 1998 on the Company's 10 1/2% Senior Notes, (ii) to repay an approximately $11.2 million trust deed note payable due in March of 1998 and (iii) for general corporate purposes. 36 STANDARD PACIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The 8% Senior Notes are senior unsecured obligations of the Company and rank pari passu with the Company's other existing senior unsecured indebtedness. The Company will, under certain circumstances, be obligated to make an offer to purchase a portion of the 8% Senior Notes in the event of the Company's failure to maintain a minimum consolidated net worth, as defined, and under certain other circumstances. In addition, the 8% Senior Notes contain other restrictive covenants which, among other things, impose certain limitations on the ability of the Company to (i) incur additional indebtedness, (ii) create liens, (iii) make restricted payments, as defined, and (iv) sell assets. 37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain of the information required by this Item with respect to executive officers is set forth under the caption "Executive Officers of the Company" in Part I. The remaining information required by Items 401 and 405 of Regulation S-K is set forth in the Company's 1998 Annual Meeting Proxy Statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1997. The Company's 1998 Annual Meeting Proxy Statement, exclusive of the information set forth under the captions "Report of the Compensation Committee" and "Company Performance," is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 402 of Regulation S-K is set forth in the Company's 1998 Annual Meeting Proxy Statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1997. The Company's 1998 Annual Meeting Proxy Statement, exclusive of the information set forth under the captions "Report of the Compensation Committee" and "Company Performance," is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 403 of Regulation S-K is set forth in the Company's 1998 Annual Meeting Proxy Statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1997. The Company's 1998 Annual Meeting Proxy Statement, exclusive of the information set forth under the captions "Report of the Compensation Committee" and "Company Performance," is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 38 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE REFERENCE --------- (a) (1) Financial Statements, included in Part II of this report: Report of Independent Public Accountants......................... 18 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1997............................................... 19 Consolidated Balance Sheets at December 31, 1997 and 1996........ 20 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1997............... 21 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997............................................... 22 Notes to Consolidated Financial Statements....................... 24 (2) Financial Statement Schedules: Financial Statement Schedules are omitted since the required in- formation is not present or is not present in the amounts suffi- cient to require submission of the schedule, or because the in- formation required is included in the consolidated financial statements, including the notes thereto. (3) Index to Exhibits See item (a) (3) below.
(b)Reports on Form 8-K. No Current Reports on Form 8-K were filed during the last quarter of the period covered by this Annual Report on Form 10-K. (c)INDEX TO EXHIBITS. See Item 14(a)(3) below. (d)Financial Statements required by Regulation S-X excluded from the annual report to shareholders by Rule 14(a)-3(b)(1). Not applicable. 39 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF COSTA MESA, CALIFORNIA, ON THE 10TH DAY OF MARCH 1998. STANDARD PACIFIC CORP. (Registrant) By: /s/ Arthur E. Svendsen __________________________________ Arthur E. Svendsen Chairman of the Board and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Arthur E. Svendsen Chairman of the Board, Chief March 10, 1998 ____________________________________ Executive Officer and (Arthur E. Svendsen) Director /s/ Stephen J. Scarborough President and Director March 10, 1998 ____________________________________ (Stephen J. Scarborough) /s/ Andrew H. Parnes Vice President of Finance March 10, 1998 ____________________________________ and Treasurer and Principal (Andrew H. Parnes) Financial and Accounting Officer /s/ Robert J. St. Lawrence Director March 10, 1998 ____________________________________ (Robert J. St. Lawrence) /s/ William H. Langenberg Director March 10, 1998 ____________________________________ (William H. Langenberg) /s/ James L. Doti Director March 10, 1998 ____________________________________ (James L. Doti) /s/ Keith D. Koeller Director March 10, 1998 ____________________________________ (Keith D. Koeller) /s/ Donald H. Spengler Director March 10, 1998 ____________________________________ (Donald H. Spengler) /s/ Ronald R. Foell Director March 10, 1998 ____________________________________ (Ronald R. Foell)
40 INDEX TO EXHIBITS (a)(3) *3.1 Certificate of Incorporation of the Registrant incorporated by reference to Exhibit 3.1 of the Registrant's Registration Statement on Form S-4 (file no. 33-42293). *3.2 Certificate of Correction of Certificate of Incorporation of the Registrant incorporated by reference to Exhibit 3.2 of the Registrant's Registration Statement on Form 8-B filed with the Securities and Exchange Commission on December 17, 1991. *3.3 Form of Certificate of Amendment to Certificate of Incorporation of the Registrant incorporated by reference to Exhibit 3.3 of the Registrant's Registration Statement on Form 8-B filed with the Securities and Exchange Commission on December 17, 1991. *3.4 Form of Certificate of Merger of the Registrant incorporated by reference to Exhibit 3.4 of the Registrant's Registration Statement on Form 8-B filed with the Securities and Exchange Commission on December 17, 1991. *3.5 Bylaws of the Registrant incorporated by reference to Exhibit 3.2 of the Registrant's Registration Statement on Form S-4 (file no. 33- 42293). *4.1 Rights Agreement, dated as of December 31, 1991, between the Registrant and Manufacturers Hanover Trust Company of California, as Rights Agent, incorporated by reference to Exhibit 4.1 of the Registration Statement on Form S-4 (file no. 33-42293). *4.2 Standard Pacific Corp. Officers' Certificate dated March 5, 1993 with respect to the Company's 10 1/2% Senior Notes due 2000, incorporated by reference to Exhibit 4 of the Company's Current Report on Form 8-K dated March 5, 1993. *4.3 Standard Pacific Corp. Officers' Certificate dated June 17, 1997 with respect to the Registrant's 8 1/2% Senior Notes due 2007, incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated June 17, 1997. 4.4 Standard Pacific Corp. Officers' Certificate dated February 5, 1998 with respect to the Registrant's 8% Senior Notes due 2008. 4.5 Registration Rights Agreement dated as of February 5, 1998 between the Registrant and SBC Warburg Dillon Read Inc., BancAmerica Robertson Stephens and Donaldson Lufkin & Jenrette Securities Corporation. *4.6 Indenture dated as of April 1, 1992 by and between the Company and United States Trust Company of New York, Trustee, incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K dated February 24, 1993. *10.1 Acquisition Agreement dated March 6, 1987 between the Federal Savings and Loan Insurance Corporation and Standard Pacific Savings, F.A. incorporated by reference to Exhibit C of the Company's Current Report on Form 8-K dated March 6, 1987. *10.2 Sixth Amended and Restated Revolving Credit Agreement dated as of August 8, 1997, among the Company, Bank of America National Trust and Savings Association, The First National Bank of Chicago, Credit Lyonnais Los Angeles Branch, Fleet National Bank, Sanwa Bank California, Comerica Bank and PNC Bank, National Association, incorporated by reference to Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. *10.3 Standard Pacific Corp. 1991 Employee Stock Incentive Plan, incorporated by reference to Annex B of the Company's prospectus dated October 11, 1991, filed with the Securities and Exchange Commission pursuant to Rule 424(b). *10.4 Form of Stock Option Agreement to be used in connection with the Standard Pacific Corp. 1991 Employee Stock Incentive Plan, incorporated by reference to Exhibit 28.2 of the Company's Registration Statement on Form S-8 filed on January 3, 1992. 41 *10.5 Standard Pacific Corp. 1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.1 of the Company's Registration Statement on Form S-8 filed on August 21, 1997. *10.6 Form of Non-Qualified Stock Option Agreement to be used in Company's 1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.2 of the Company's Registration Statement on Form S-8 filed on August 21, 1997. *10.7 Form of Non-Qualified Director's Stock Option Agreement to be used in connection with the Company's 1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.3 of the Company's Registration Statement on Form S-8 filed on August 21, 1997. *10.8 Form of Incentive Stock Option Agreement to be used in connection with the Company's 1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.4 of the Company's Registration Statement on Form S-8 filed on August 21, 1997. *10.9 Stock Purchase Agreement, dated as of September 30, 1997, by and between the Company, Duc Development Company and Daniel A. Duc, incorporated by reference to Exhibit 10.9 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. 10.10 Share Purchase Agreement, dated as of November 7, 1997, by and between the Company and HON Industries, Inc. 22.1 Subsidiaries of the Company. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 27.1 Financial Data Schedule. - -------- (*) Previously filed. 42 EX-4.4 2 OFFICER'S CERTIFICATE DATED FEBRUARY 5, 1998 EXHIBIT 4.4 STANDARD PACIFIC CORP. OFFICERS' CERTIFICATE --------------------- Pursuant to Sections 2.01 and 2.03(a) of the Indenture, dated as of April 1, 1992 (the "Indenture"), between Standard Pacific Corp., a Delaware corporation (the "Company"), and United States Trust Company of New York, as Trustee (the "Trustee"), the undersigned, Stephen J. Scarborough and Andrew H. Parnes, the President and Vice President, Treasurer and Chief Financial Officer of the Company, respectively, hereby certify on behalf of the Company as follows: 1. AUTHORIZATION. The establishment of 8% Senior Notes as a series of Securities of the Company (the "Notes") has been approved and authorized in accordance with the provisions of the Indenture. The form of Note attached hereto as Exhibit A has been approved and authorized in accordance with the provisions of the Indenture. 2. COMPLIANCE WITH CONDITIONS PRECEDENT. All conditions precedent provided for in the Indenture relating to the establishment and issue of the Notes as a series of Securities of the Company and the establishment of a form of Note as a Security have been complied with. 3. TERMS. The terms of the series of Securities established pursuant to this Officers' Certificate shall be as follows: (A) TITLE. The title of the series of Securities established hereby is the "8% Senior Notes due 2008." (B) AGGREGATE PRINCIPAL AMOUNT. The limit upon the aggregate principal amount of the Notes which may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Sections 2.08, 2.09, 2.11, 3.06 and 9.05 of the Indenture and except for any Notes which, pursuant to Section 2.04 of the Indenture, are deemed never to have been authorized and delivered thereunder) is $175,000,000 of which $100,000,000 will be issued on the date hereof and the remainder of which will remain available for future issuance. (C) FORM; RESTRICTIVE LEGENDS; BOOK-ENTRY PROVISION FOR GLOBAL NOTES; SPECIAL TRANSFER PROVISIONS. (I) FORM. Securities offered and sold in reliance on Rule 144A promulgated under the Securities Act of 1933, as amended, (the "Securities Act") shall be issued initially in the form of one or more permanent global Notes (each a "Restricted Global Note"), registered in the name of the Depositary (as defined in the Indenture) or its nominee, substantially in the form of Exhibit A, deposited with the Trustee, as custodian for the Depositary or its nominee, duly executed by the Company and authenticated by the Trustee as herein provided. The aggregate principal amount of the Restricted Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Notes offered and sold in offshore transactions in reliance on Regulation S promulgated under the Securities Act shall be issued initially in the form of one or more temporary global Notes, registered in the name of the Depositary or its nominee, substantially in the form of Exhibit A (the "Regulation S Temporary Global Notes") deposited with the Trustee, as custodian for the Depositary or its nominee, duly executed by the Company and authenticated by the Trustee as provided herein. Thereafter, following receipt by the Trustee of an Officers' Certificate of the Company to such effect, at any time on or after March 23, 1998 (the "Offshore Notes Exchange Date"), the Trustee shall exchange the outstanding principal amount of Notes represented by the Regulation S Temporary Global Notes for one or more permanent global Notes registered in the name of the Depositary or its nominee, substantially in the form hereinabove recited without the Securities Act Legend (as defined below) (the "Regulation S Permanent Global Notes"; and together with the Regulation S Temporary Global Note, the "Regulation S Global Notes") duly executed by the Company and authenticated by the Trustee as provided herein. In connection with such exchange, the Trustee shall hold the Regulation S Permanent Global Notes as custodian for the Depositary or its nominee, reflect on its 2 books and records the date of such exchange and cancel the Regulation S Temporary Global Notes. Restricted Global Notes and Regulation S Global Notes are sometimes referred to herein as the "Global Notes". The aggregate principal amount of Regulation S Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Following the original issuance of Notes, Notes offered and sold to an institutional "accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act and which is not a Qualified Institutional Buyer (as defined below), an "Institutional Accredited Investor"), shall be issued in the form of one or more physical certificated Notes (each a "Certificated Note") registered in the name of the purchaser thereof. Certificated Notes may only be issued in the circumstances described in subparagraph (c)(iii)(B) and subparagraph (c)(iv)(A) below. (II) RESTRICTIVE LEGENDS. (A) Each Restricted Global Note, each Regulation S Global Note and each Certificated Note shall bear the following legend (the "Securities Act Legend") on the face thereof until the provisions of subparagraph (c)(iv)(C) or the second subparagraph of paragraph (c)(i) relating to the removal of such legend are complied with: THE SECURITY (OR ITS PREDECESSORS) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY 3 BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED THAT IN THE CASE OF A TRANSFER PURSUANT TO THIS CLAUSE (d), SUCH TRANSFER IS EFFECTED BY THE DELIVERY TO THE TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED IN ITS NAME (OR ITS NOMINEE'S NAME) IN THE BOOKS MAINTAINED BY THE REGISTRAR, AND IS SUBJECT TO THE RECEIPT BY THE REGISTRAR (AND THE COMPANY, IF IT SO REQUESTS) OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. (B) Each Global Note shall also bear the following legend (the "Global Legend") on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 4 THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES. (III) BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES. (A) Each Restricted Global Note initially shall (i) be registered in the name of a nominee of the Depositary and (iii) bear legends as set forth in paragraph (c)(ii) above. Each Regulation S Temporary Global Note initially shall (i) be registered in the name of a nominee for the Depositary for the accounts of Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("Cedel"), (ii) be delivered to the Trustee as custodian on behalf of the Depositary and (iii) bear legends as set forth in paragraph (c)(ii) above. Each Regulation S Permanent Global Note initially shall (i) be registered in the name of a nominee of the Depositary, (ii) be delivered to the Trustee as custodian on behalf of the Depositary and (iii) bear the legend as set forth in subparagraph (c)(ii)(B) above. Prior to the Offshore Notes Exchange Date, interests in the Regulation S Temporary Global Note may only be held through Euroclear and Cedel. Following the Offshore Notes Exchange Date, interests in the Regulation S Permanent Global Note may be held by any member of, or participants in, the Depositary ("Agent Members"). Agent Members shall have no rights under the Indenture with respect to any Global Note held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of any of them as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the 5 foregoing, nothing herein shall prevent the Company, the Trustee or any agent of any of them from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Global Note. (B) Except as provided in paragraph (c)(iv), transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depositary, its successors or their respective nominees. Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in any Restricted Global Note or Regulation S Global Note, respectively, if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for such Restricted Global Note or Regulation S Global Note, as the case may be, and a successor depository is not appointed by the Company within 90 days of such notice, (ii) the Company, in its sole discretion, shall so request or (iii) an Event of Default has occurred and is continuing and the Registrar shall have received a request from the Depository to issue such Certificated Notes. (C) Any beneficial interest in one of the Global Notes that is transferred to a Person who takes delivery in the form of an interest in another Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. (D) In connection with the transfer of an entire Restricted Global Note or Regulation S Global Note to beneficial owners pursuant to subparagraph (B) of this paragraph, the Restricted Global Note or Regulation S Global Note, as the case may be, shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in such Restricted Global Note or Regulation S Global 6 Note, as the case may be, an equal aggregate principal amount of Certificated Notes of authorized denominations. (E) Any Certificated Note delivered in exchange for an interest in a Restricted Global Note pursuant to subparagraph (B) or (D) of this paragraph shall, except as otherwise provided by subparagraph (C) of paragraph (c)(iv), bear the Securities Act Legend. (IV) SPECIAL TRANSFER PROVISIONS. Unless and until the Securities Act Legend is removed from a Certificated Note or Global Note pursuant to subparagraph (C) below (including as a result of an exchange completed on the Offshore Notes Exchange Date pursuant to paragraph (c)(i) above), the following additional provisions shall apply to the proposed transfer, exchange or replacement of Certificated Notes: (A) Transfers to Non-QIB Institutional Accredited Investors. ------------------------------------------------------- The following provisions shall apply with respect to the registration of any proposed transfer of a Note (or interest in a Global Note) to any Institutional Accredited Investor which is not a Qualified Institutional Buyer (within the meaning of Rule 144A under the Securities Act, a "Qualified Institutional Buyer") or to a Non-U.S. Person (as defined in Regulation S): (1) The Registrar shall register the transfer of any Certificated Note containing the Securities Act Legend or any interest in a Restricted Global Note if (x) the requested transfer is after the time period referred to in Rule 144(k) under the Securities Act as in effect with respect to such transfer or (y) the proposed transferee (excluding Non-U.S. Persons) has delivered to the Registrar a certificate substantially in the form of Exhibit B hereto or if the transferee is a Non-U.S. Person, the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto. (2) If the proposed transferor is an Agent Member holding a beneficial interest in a Restricted Global Note and the proposed transferee is an Institutional Accredited Investor which is not a Qualified 7 Institutional Buyer, upon receipt by the Depositary and Registrar of (x) the documents required by subparagraph (1) above (if such transfer is pursuant to clause (y) of subparagraph (1) above) and (y) instructions given in accordance with the Registrar's procedures, the Registrar shall reflect on its books and records the date of such transfer and a decrease in the principal amount of such Restricted Global Note in an amount equal to the principal amount of the beneficial interest in such Restricted Global Note to be transferred and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Notes of like tenor and amount. (B) Transfers to Qualified Institutional Buyers. The following ------------------------------------------- provisions shall apply with respect to the registration of any proposed transfer of a Note (or interest in a Global Note) to a Qualified Institutional Buyer: (1) The Registrar shall register the transfer of any Certificated Note containing the Securities Act Legend if (x) the requested transfer is after the time period referred to in Rule 144(k) under the Securities Act as in effect with respect to such transfer or (y) such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a Qualified Institutional Buyer within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (2) If the Note to be transferred is a 8 Certificated Note containing the Securities Act Legend and the proposed transferee is an Agent Member holding such interest on behalf of a Qualified Institutional Buyer, upon receipt by the Registrar of (x) the documents referred to in subparagraph (1) above (if such transfer is pursuant to clause (y) of subparagraph (1) above) and (y) instructions given in accordance with the Registrar's procedures, the Registrar shall reflect on its books and records the date of such transfer and an increase in the principal amount of the Restricted Global Note in an amount equal to the principal amount of the Certificated Note to be transferred and the Trustee shall cancel the Certificated Note so transferred. (C) Securities Act Legend. Upon the registration of transfer, --------------------- exchange or replacement of Notes bearing the Securities Act Legend, the Registrar shall deliver only Notes that bear the Securities Act Legend unless the requested transfer, exchange or replacement (i) is after the time period referred to in Rule 144(k) under the Securities Act as in effect with respect to such transfer, exchange or replacement, (ii) is made under the circumstances contemplated by the second subparagraph of paragraph (c)(i) or (iii) there is delivered to the Registrar an opinion of counsel reasonably satisfactory to the Company to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. Upon the registration of transfer, exchange or replacement of Notes not bearing the Securities Act Legend, the Registrar shall deliver Notes that do not bear the Securities Act Legend. (D) General. By its acceptance of any Note bearing the ------- Securities Act Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth herein and in the Securities Act Legend and agrees that it will transfer such Note only as provided herein. The Registrar shall not register a transfer of any Note unless such transfer complies with the restrictions on transfer of such Note set forth herein. In connection with any transfer of Notes, each Holder agrees by its acceptance of the Notes to furnish the Registrar or the Company such 9 certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to paragraph (c)(iii) or this paragraph (c)(iv) in accordance with its customary procedures. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. (D) PERSONS TO WHOM INTEREST PAYABLE. Interest on the Notes shall be payable to the person in whose name a Note is registered at the close of business (whether or not a Business Day) on the Regular Record Date (as defined in the Indenture), for such interest payment, except (i) that interest payable on February 15, 2008 shall be payable to the person to whom principal is payable, and (ii) that default interest shall be payable in the manner provided in Section 2.13 of the Indenture. (E) STATED MATURITY. The date on which the principal of the Notes shall be payable, unless accelerated pursuant to the Indenture, is February 15, 2008. (F) RATE OF INTEREST; INTEREST PAYMENT DATES; REGULAR RECORD DATES; OVERDUE PRINCIPAL AND INTEREST. (I) RATE OF INTEREST. The principal amount of each of the Notes shall bear simple interest at the rate of 8% per annum. The date from which interest shall accrue for each of the Notes shall be February 10, 1998 or in the case of Notes issued after August 15, 1998, the Interest Payment Date next preceeding the date of issuance of such Notes. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. (II) INTEREST PAYMENT DATES. Interest on the 10 Notes shall be payable semiannually in arrears on February 15 and August 15 of each year, commencing August 15, 1998. If any Interest Payment Date or Maturity of the Notes falls on a day that is not a Business Day, the payment due on such Interest Payment Date or at Maturity will be made on the following day that is a Business Day as if it were made on the date such payment was due and no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date or Maturity, as the case may be. (III) REGULAR RECORD DATES. The Regular Record Dates for interest payable on each February 15 and August 15 will be the immediately preceding February 1 and August 1 (whether or not a Business Day), respectively. (IV) OVERDUE PRINCIPAL AND INTEREST. Overdue principal and, to the extent payment of such interest shall be legally enforceable, overdue installments of interest shall bear interest at the rate of 8% per annum. (G) PLACE OF PAYMENT; REGISTRATION OF TRANSFER AND EXCHANGE; NOTICES TO COMPANY. (I) PLACE OF PAYMENT. Payment of the principal of and interest on the Notes will be made at the Corporate Trust Office of the Trustee in the Borough of Manhattan, The City of New York, and at any other office or agency designated by the Company for such purpose; provided, however, that at the option of the -------- ------- Company, payment of interest due (other than at Maturity or upon Redemption) may be made by check mailed to the address of the person entitled thereto as such address shall appear in the register of Securities. (II) REGISTRATION OF EXCHANGE AND TRANSFER. Notes may be presented for exchange and registration of transfer at the Corporate Trust Office of the Trustee in the Borough of Manhattan, The City of New York, or at the office of any transfer agent hereafter designated by the Company for such purpose. 11 (III) NOTICES TO COMPANY. Notices and demands to or upon the Company in respect to the Notes and the Indenture may be served at Standard Pacific Corp., 1565 West MacArthur Boulevard, Costa Mesa, California 92636, Attention: Vice President and Treasurer. (H) OPTIONAL REDEMPTION. Except as set forth in the following paragraph, the Notes will not be redeemable at the option of the Company prior to February 15, 2003. Thereafter, the Notes will be redeemable, at the Company's option, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on February 15 of the years set forth below:
Redemption Year Price ---- ---------- 2003................................... 104.00% 2004................................... 102.67% 2005................................... 101.33% 2006 and thereafter.................... 100.00%
If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate. (I) ACCELERATION. The principal amount of the Notes shall be payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.02 of the Indenture. (J) CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company repurchase all or a portion of such Holder's Notes at a purchase price in cash equal to 101 percent of the principal amount thereof plus accrued and unpaid interest to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the 12 provisions of the next paragraph. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee stating: (aa) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Notes at a purchase price in cash equal to 101 percent of the principal amount outstanding at the repurchase date plus accrued and unpaid interest to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date) (the "Repurchase Price"); (bb) the circumstances and relevant facts and relevant financial information regarding such Change of Control; (cc) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Repurchase Date"); (dd) that any Note not tendered or accepted for payment will continue to accrue interest; (ee) that any Note accepted for payment shall cease to accrue interest after the Repurchase Date; (ff) that Holders electing to have a Note purchased will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the Notice at least five days before the Repurchase Date; (gg) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than three days prior to the Repurchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have the Note purchased; and (hh) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes 13 surrendered. On the Repurchase Date, the Company shall (i) accept for payment Notes or portions thereof properly tendered, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to Holders of Notes so accepted, payment in an amount equal to the Repurchase Price, and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Note equal in principal amount of any unpurchased portion of the Note surrendered. The Company will publicly announce the results on or as soon after as practical the Repurchase Date. For purposes of this paragraph (j), the Trustee shall act as the Paying Agent. (K) REGISTRAR OF SECURITIES; PAYING AGENT. The Company hereby appoints the Trustee as the Registrar and initial Paying Agent. The books of the Registrar of the Securities for the Notes will be initially maintained at the Corporate Trust Office of the Trustee. (L) COMPLIANCE WITH SECURITIES LAWS. The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to Section 3(h), 3(j), 3(m)(i) or 3(m)(v) hereunder. To the extent that the provisions of any securities laws or regulations conflict with said provisions hereunder, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under said provisions hereunder by virtue thereof. (M) CERTAIN COVENANTS OF THE COMPANY. The Company covenants as follows: (I) MAINTENANCE OF CONSOLIDATED NET WORTH. The Company shall furnish to the Trustee a certificate (signed by a Vice President, and by its Treasurer, its Secretary or an Assistant Secretary) within 45 days after the end of each fiscal quarter of the Company (90 days after the end of its fiscal year) setting forth the Consolidated Net Worth of the Company and its Restricted Subsidiaries at the end of such fiscal 14 quarter. If the Consolidated Net Worth of the Company and its Restricted Subsidiaries at the end of any two consecutive fiscal quarters is less than $200,000,000, then the Company shall make an offer to all Holders to acquire (the "Offer") on the last day of the fiscal quarter next following such second fiscal quarter or, if such second fiscal quarter ends on the last day of the Company's fiscal year, 135 days after the end of such second fiscal quarter (the "Purchase Date"), 10% of the aggregate principal amount of Notes originally issued (or, if less than 10% of the principal amount of the Notes originally issued are then outstanding, then all of the Notes outstanding at that time, such amount being referred to as the "Offer Amount") at a purchase price equal to 100% of the aggregate principal amount thereof together with accrued and unpaid interest to the Purchase Date. In no event shall the failure to meet the minimum Consolidated Net Worth stated above at the end of any fiscal quarter be counted toward more than one Offer. The Company shall provide the Trustee with notice of the Offer at least 45 days before any such Purchase Date and at least 10 days before the notice of any Offer is mailed to Holders. The Company shall notify the Trustee promptly after the occurrence of any of the events specified in this paragraph (i). Notice of an Offer shall be mailed by the Trustee not less than 30 days nor more than 60 days before the Purchase Date to the Holders of the Notes at their last registered address. The Offer shall remain open from the time of mailing until 5 days before the Purchase Date. The Notice shall be accompanied by a copy of the information regarding the Company required to be contained in a Quarterly Report on Form 10-Q for the second fiscal quarter referred to above if such second fiscal quarter is one of the Company's first three fiscal quarters. If such second fiscal quarter is the Company's last fiscal quarter, a copy of the information required to be contained in an Annual Report to Shareholders pursuant to Rule 14a-3 under the Exchange Act for the fiscal year ending with such second fiscal quarter shall either accompany the notice or be mailed to Holders not less than 15 days before the Purchase Date. The Notice shall contain all instructions and materials necessary to enable such Holders to tender 15 Notes pursuant to the Offer. The Notice, which shall govern the terms of the Offer, shall state: (aa) that the Offer is being made pursuant to this paragraph (m)(i); (bb) the Offer Amount, the purchase price and the Purchase Date; (cc) that any Note not tendered or accepted for payment will continue to accrue interest; (dd) that any Note accepted for payment pursuant to the Offer shall cease to accrue interest after the Purchase Date; (ee) that Holders electing to have a Note purchased pursuant to an Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the Notice at least five days before the Purchase Date; (ff) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than three days prior to the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have the Note purchased; (gg) that if Notes in a principal amount in excess of the Offer Amount are tendered pursuant to the Offer, the Company shall purchase Notes on a pro rata basis or by lot or in such other manner as the Trustee shall deem fair and appropriate; and (hh) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. On the Purchase Date, the Company shall (i) accept for payment Notes or portions thereof properly tendered pursuant to the Offer (on a pro rata basis, by lot or in such other manner specified by the Trustee if required pursuant to 16 paragraph (gg) above), (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to Holders of Notes so accepted, payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Note equal in principal amount of any unpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Offer on or as soon as practicable after the Purchase Date. For purposes of this paragraph (m)(i), the Trustee shall act as the Paying Agent. (II) LIMITATION ON ADDITIONAL INDEBTEDNESS. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness unless, after giving effect thereto, either (i) the ratio of Indebtedness of the Company and the Restricted Subsidiaries (excluding, for purposes of this calculation only, (A) purchase money mortgages that are Non-Recourse Indebtedness, and (B) Indebtedness Incurred under letters of credit, escrow agreements and surety bonds obtained in the ordinary course of business) to Consolidated Tangible Net Worth of the Company is less than 2.25 to 1; or (ii) the Consolidated Coverage Ratio exceeds 2.0 to 1. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may Incur: (A) Indebtedness under one or more Bank Credit Facilities in an amount not in excess of $275 million; (B) purchase money mortgages that are Non-Recourse Indebtedness; (C) obligations Incurred under letters of credit, escrow agreements and surety bonds in the ordinary course of business; (D) Indebtedness Incurred under a Warehouse Facility, provided that the amount of such Indebtedness (excluding funding drafts issued thereunder) outstanding at any time pursuant to this clause (D) may not exceed 98 percent of the value of the Mortgages pledged to secure Indebtedness thereunder; and (E) Indebtedness Incurred solely for the purpose of refinancing or repaying any existing Indebtedness so long as 17 (I) the principal amount of such new Indebtedness does not exceed the principal amount of the existing Indebtedness refinanced or repaid (plus the premiums or other payments required to be paid in connection with such refinancing or repayment and the expenses incurred in connection therewith), (II) the maturity of such new Indebtedness is not earlier than that of the existing Indebtedness to be refinanced or repaid, (III) such new Indebtedness, determined as of the date of incurrence, has an Average Life at least equal to the remaining Average Life of the Indebtedness to be refinanced or repaid, (IV) the new Indebtedness is pari passu with or subordinate to the Indebtedness being refinanced or repaid, and (V) the existing and new Indebtedness are obligations of the same entity. (III) LIMITATIONS ON LIENS. The Company will not, and will not permit any Restricted Subsidiary to, issue, assume, guarantee or suffer to exist any Indebtedness secured by any mortgage, pledge, lien or other encumbrance of any nature (herein collectively referred to as a "lien" or "liens") upon any property of the Company or any Restricted Subsidiary, or on any shares of stock of any Restricted Subsidiary, without in any such case effectively providing that the Notes (together with, if the Company shall so determine, any other Indebtedness of the Company or such Restricted Subsidiary ranking pari passu with the Notes) shall be secured equally and ratably with such Indebtedness, except that the foregoing restrictions shall not apply to: (A) liens existing on December 31, 1997; (B) pledges, guarantees and deposits under workers' compensation laws, unemployment insurance laws or similar legislation, good faith deposits under bids, tenders or contracts, deposits to secure public or statutory obligations or appeal or similar bonds, and liens created by special assessment districts used to finance infrastructure improvements; (C) liens existing on property or assets of any entity on the date on which it becomes a Restricted Subsidiary, which secured Indebtedness is not Incurred in contemplation of such entity becoming a Restricted Subsidiary; (D) liens on or leases of model home units; (E) liens on property, inventory and receivables of Panel Concepts, Inc. ("Panel Concepts") to provide working capital (exclusive of cash and cash equivalents) for Panel Concepts in the ordinary course of business; 18 (F) Capitalized Lease Obligations entered into in the ordinary course of business in amounts not in excess of $10,000,000 in the aggregate; (G) the replacement of any of the items set forth in clauses (A) through (F) above, provided that (i) the principal amount of the Indebtedness secured by liens shall not be increased, (ii) such Indebtedness, determined as of the date of Incurrence, has an Average Life at least equal to the remaining Average Life of the Indebtedness to be refinanced, (iii) the maturity of such Indebted ness is not earlier than that of the Indebtedness to be refinanced, and (iv) the liens shall be limited to the property or part thereof which secured the lien so replaced or property substituted therefor as a result of the destruction, condemnation or damage of such property; (H) liens on property acquired, constructed or improved by the Company or any Restricted Subsidiary, which liens are either existing at the time of such acquisition or at the time of completion of construction or improvement or created within 120 days after such acquisition, completion or improvement, to secure Indebtedness Incurred or assumed to finance all or part of such property, including any increase in the principal amount of such Indebtedness and any extension of the repayment schedule and maturity of such Indebtedness Incurred or entered into in the ordinary course of business; (I) liens or priorities incurred in the ordinary course of business, such as laborers', employees', carriers', mechanics', vendors' and landlords' liens or priorities; (J) liens for certain taxes and certain survey and title exceptions; (K) liens arising out of judgments or awards against the Company or any Restricted Subsidiary with respect to which the Company or such Restricted Subsidiary is in good faith prosecuting an appeal or proceeding for review and with respect to which it has secured a stay of execution pending such appeal or proceeding for review; (L) liens on property owned by any Homebuilding Joint Venture; (M) liens securing a Warehouse Facility, provided that such liens shall not extend to any assets other than the mortgages, promissory notes and other collateral that secures mortgage loans made by the Company or any of its Restricted Subsidiaries; and (N) liens which would otherwise be subject to the foregoing restrictions which, when the Indebtedness relating to those liens is added to all other then outstanding Indebtedness of the Company and the Restricted 19 Subsidiaries secured by liens and not listed in clauses (A) through (M) above, does not exceed $50,000,000. 20 (IV) LIMITATION ON RESTRICTED PAYMENTS. The Company will not, nor will it permit any Restricted Subsidiary to, directly or indirectly, (A) declare or pay any dividend on, or make any distribution in respect of, or purchase, redeem or otherwise acquire or retire for value, any Capital Stock of the Company other than through the issuance solely of the Company's own Capital Stock (other than Disqualified Stock), or rights thereto; (B) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value prior to scheduled principal payments or maturity, Indebtedness of the Company or any Restricted Subsidiary which is expressly subordinated in right of payment to the Notes (other than Indebtedness Incurred after the issuance of the Notes provided that such repayment, redemption, repurchase, defeasance or other retirement is made substantially concurrent with the receipt of proceeds from the Incurrence of Indebtedness that by its terms is both subordinated in right of payment to the Notes and matures, by sinking fund or otherwise, after February 15, 2008; or (C) make any Restricted Investment (such payments or any other actions described in (A), (B) and (C) being referred to herein collectively as, "Restricted Payments") unless (I) at the time of, and after giving effect to, the proposed Restricted Payment, no Event of Default (and no event that, after notice or lapse of time, or both, would become an Event of Default) shall have occurred and be continuing, (II) the Company is able to Incur an additional $1.00 of Indebtedness pursuant to the first paragraph of Section (m)(ii) herein, and (III) at the time of, and after giving effect thereto, the sum of the aggregate amount expended (or with respect to guaranties or similar arrangements the amount then guaranteed) for all such Restricted Payments (the amount expended for such purposes, if other than in cash, to be determined by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a resolution of such Board of Directors filed with the Trustee) subsequent to June 30, 1997 shall not exceed the sum of (aa) 50% of the aggregate Consolidated Net Income (or, in case such aggregate Consolidated Net Income shall be a deficit, minus 100% of such deficit) of the Company accrued on a cumulative basis subsequent to June 30, 1997, (bb) the aggregate net proceeds, 21 including the fair market value of property other than cash (as determined by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a resolution of such Board of Directors filed with the Trustee), received by the Company from the issuance or sale, after the date of issuance of the Notes, of Capital Stock (other than Disqualified Stock) of the Company, including Capital Stock (other than Disqualified Stock) of the Company issued subsequent to the date of issuance of the Notes upon the conversion of Indebtedness of the Company initially issued for cash, (cc) 100% of dividends or distributions (the fair value of which, if other than cash, to be determined by the Board of Directors, in good faith) paid to the Company (or any Restricted Subsidiary) by an Unrestricted Subsidiary, Homebuilding Joint Venture or any other person in which the Company (or any Restricted Subsidiary), directly or indirectly, has an ownership interest but less than a 100% ownership interest to the extent that such dividends or distributions do not exceed the amount of loans, advances or capital contributions made to any such entity or person subsequent to the date of issuance of the Notes and included in the calculation of Restricted Payments, and (dd) $40,000,000; provided, however, that the foregoing shall not prevent (i) the -------- ------- payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration the making of such payment would have complied with the provisions of this limitation on dividends; provided, however, that such dividend shall be included in future calculations of Restricted Payments, (ii) the retirement of any shares of the Company's Capital Stock by exchange for, or out of proceeds of the substantially concurrent sale of, other shares of its Capital Stock (other than Disqualified Stock); provided, however, that the aggregate net proceeds from such sale shall be excluded from the calculation of the amounts under subclause (bb) above, (iii) the redemption, repayment, repurchase, defeasance or other retirement of Indebtedness with proceeds received from the substantially concurrent sale of shares of the Company's Capital Stock (other than Disqualified Stock); provided however, that the aggregate net proceeds from such sale shall be excluded from the calculation of the amounts under subclause (bb) above, or (iv) any investment or investments in Standard Pacific Savings, F.A. 22 ("Savings") by the Company or any of its Restricted Subsidiaries for the purpose of causing Savings to comply with any regulatory agreements existing on the date of issuance of the Notes or with any applicable law, rule, regulation, official interpretation of law, rule or regulation or official directive which governs the capital maintenance, net worth or similar regulatory requirements applicable to Savings. (V) LIMITATION ON ASSET SALES. The Company will not, and will not permit any Restricted Subsidiary to, make an Asset Disposition, other than for fair market value and in the ordinary course of business, with an aggregate net book value as of the end of the immediately preceding fiscal quarter greater than 10% of the Company's total consolidated assets as of that date, unless (A) the consideration received by the Company (or a Restricted Subsidiary, as the case may be) for such disposition consists of at least 70% cash; provided, however, that for -------- ------- purposes of this provision (A), the amount of any liabilities assumed by the transferee and any notes or other obligations received by the Company or a Restricted Subsidiary which are immediately converted into cash shall be deemed to be cash, and (B) the Company shall within one year after the date of such sale or sales, apply the Net Proceeds from such sale or sales in excess of an amount equal to 10% of the Company's total consolidated assets to (I) a purchase of or an Investment in Additional Assets (other than cash or cash equivalents), (II) repayment of indebtedness of the Company which is pari passu with ---- ----- the Notes, and/or (III) make an offer to acquire all or part of the Notes at a purchase price equal to the principal amount thereof plus accrued and unpaid interest thereon to the purchase date. In the event the Company elects to or shall be required to offer to redeem Notes pursuant to the provisions of this paragraph (m)(v), the Company shall deliver to the Trustee an Officers' Certificate specifying the Asset Sale Offer Amount (as defined below) and the Asset Sale Purchase Date (as defined below). Within 15 days thereafter, the Company shall mail or cause the Trustee to mail (in the Company's name and at its expense) an offer to redeem (the "Asset Sale Offer") to each Holder of Notes. The redemption price shall 23 be 100% of the principal amount of the Notes plus accrued interest to the redemption date and upon surrender to the Trustee or the Paying Agent, the Holders of such Notes shall be paid the redemption price. The date designated for repurchase of Notes pursuant to an Asset Sale Offer (the "Asset Sale Purchase Date") shall be a date designated by the Company that is not less than 30 days nor more than 60 days before notice of an Asset Sale Offer is to be and shall be mailed by the Trustee to the Holders of the Notes at their last registered address. The Asset Sale Offer shall remain open from the time of mailing until 5 days before the Asset Sale Purchase Date. The Notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Notice, which shall govern the terms of the Asset Sale Offer, shall state: (aa) that the Asset Sale Offer is being made pursuant to this paragraph (m)(v); (bb) the amount of Notes offered to be redeemed (the "Asset Sale Offer Amount"), the purchase price and the Asset Sale Purchase Date; (cc) that any Note not tendered or accepted for payment will continue to accrue interest; (dd) that any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Asset Sale Purchase Date; (ee) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the Notice at least five days before the Asset Sale Purchase Date; (ff) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than three days prior to the Asset Sale Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have the Note 24 purchased; (gg) that if Notes in a principal amount in excess of the Asset Sale Offer Amount are tendered pursuant to the Asset Sale Offer, the Company shall purchase Notes on a pro rata basis or by lot or in such other manner as the Trustee shall deem fair and appropriate; and (hh) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. On the Asset Sale Purchase Date, the Company shall (i) accept for payment Notes or portions thereof properly tendered pursuant to the Asset Sale Offer (on a pro rata basis, by lot or in such other manner specified by the Trustee if required pursuant to paragraph (gg) above), (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to Holders of Notes so accepted, payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Note equal in principal amount of any unpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Asset Sale Offer on or as soon after as practical the Asset Sale Purchase Date. For purposes of this paragraph (m)(v), the Trustee shall act as the Paying Agent. (VI) TRANSACTIONS WITH AFFILIATES. (A) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction or series of related transactions (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof (I) are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained at the time of such transaction in arm's-length 25 dealings with a person who is not such an Affiliate; and (II) if such Affiliate Transaction (or series of related Affiliate Transactions) involve aggregate payments in an amount in excess of $10 million in any one year, (aa) are set forth in writing, (bb) comply with clause (I) above and (cc) have been approved by a majority of the disinterested members of the Board of Directors. (B) The provisions of the foregoing paragraph (A) shall not prohibit (I) any Restricted Payment permitted to be paid pursuant to the covenant described under clause (m)(iv) above; (II) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise, pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans in the ordinary course of business and approved by the Board of Directors or a committee thereof; (III) the grant of stock options or similar rights to employees and directors of the Company in the ordinary course of business and pursuant to plans approved by the Board of Directors or a committee thereof; (IV) loans or advances to employees in the ordinary course of business of the Company or its Restricted Subsidiaries; (V) fees, compensation or employee benefit arrangements paid to and indemnity provided for the benefit of directors, officers or employees of the Company or any Subsidiary in the ordinary course of business; or (VI) any Affiliate Transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries. (VII) LIMITATION ON PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective, any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary (I) to pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (II) to make any loans or advances to the Company or (III) transfer any of its property or assets to the Company, except: (aa) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the date of issuance of the Notes; (bb) any encumbrance or restriction with respect to a Restricted 26 Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary which was entered into on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (cc) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (aa) or (bb) of this covenant (or effecting a Refinancing of such Refinancing Indebtedness pursuant to this clause (cc)) or contained in any amendment to an agreement referred to in clause (aa) or (bb) of this covenant or this clause (cc); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no more restrictive in any material respect than the encumbrances and restrictions with respect to such Restricted Subsidiary contained in such agreements; (dd) any such encumbrance or restriction consisting of customary contractual non-assignment provisions to the extent such provisions restrict the transfer of rights, duties or obligations under such contract; (ee) in the case of clause (III) above, restrictions contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (ff) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (gg) any restriction imposed by applicable law. (VIII) RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Company will not permit any Restricted Subsidiary to be designated as an Unrestricted Subsidiary unless the Company and its Restricted Subsidiaries would thereafter be permitted to (A) Incur at least $1.00 of Indebtedness under the first paragraph (m)(ii) 27 above and (B) make a Restricted Payment of at least $1.00 under paragraph (m)(iv) above. The Company will not permit any Unrestricted Subsidiary to be designated as a Restricted Subsidiary unless such Subsidiary has outstanding no Indebtedness except such Indebtedness as the Company could permit it to become liable for immediately after becoming a Restricted Subsidiary under paragraph (m)(ii) above. Promptly after the adoption of any Board Resolution designating a Restricted Subsidiary as an Unrestricted Subsidiary or an Unrestricted Subsidiary as a Restricted Subsidiary, a copy thereof shall be filed with the Trustee, together with an Officers' Certificate stating that the provisions of this paragraph (m)(viii) have been complied with in connection with such designation. The Company will not permit Standard Pacific of Texas, Inc. to be designated as an Unrestricted Subsidiary or permit the assets of the Company or any Subsidiary employed in the homebuilding operations to be transferred to an Unrestricted Subsidiary, except in amounts permitted under paragraph (m)(iv) above. (IX) SUCCESSOR CORPORATION. The Company will not consolidate with, merge into or transfer all or substantially all of its assets to another person unless (i) such person (if other than the Company) is a corporation organized under the laws of the United States or any state thereof or the District of Columbia and expressly assumes all the obligations of the Company under the Indenture and the Notes; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) the Consolidated Net Worth of the obliger of the Notes immediately after giving effect to such transaction (exclusive of any adjustments to Consolidated Net Worth relating to transaction costs and accounting adjustments resulting from such transaction) is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (iv) the surviving corporation would be able to Incur at least an additional $1.00 of Indebtedness pursuant to the first paragraph of the covenant described under paragraph (m)(ii). 28 (X) REPORTS TO HOLDERS OF THE NOTES. So long as the Company is subject to the periodic reporting requirements of the Exchange Act, it shall continue to furnish the information required thereby to the SEC. Even if the Company is entitled under the Exchange Act not to furnish such information to the SEC or to the holders of the Notes, it will nonetheless continue to furnish information under Section 13 or 15(d) of the Exchange Act to the SEC and the Trustee as if it were subject to such periodic reporting requirements. (N) ADDITIONAL EVENTS OF DEFAULT. In addition to the Events of Default specified in the Indenture, the following shall constitute Events of Default under Section 6.01 of the Indenture with respect to the Notes: (i) default under any mortgage, indenture (including the Indenture) or instrument under which is issued or which secures or evidences Indebtedness of the Company or any Restricted Subsidiary (other than Non-Recourse Indebtedness) which default constitutes a failure to pay principal of such Indebtedness in an amount of $20,000,000 or more when due and payable (other than as a result of acceleration) or results in Indebtedness (other than Non-Recourse Indebtedness) in the aggregate of $20,000,000 or more becoming or being declared due and payable before it would otherwise become due and payable, and (ii) entry of a final judgment for the payment of money against the Company or any Restricted Subsidiary in an amount of $5,000,000 or more which remains undischarged or unstayed for a period of 60 days after the date on which the right to appeal such judgment has expired or becomes subject to an enforcement proceeding. (O) CERTAIN DEFINITIONS. The following terms shall have the meanings indicated for purposes of this Officers' Certificate. All capitalized terms used in this Officers' Certificate and not otherwise defined herein shall have the meanings set forth in the Indenture. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) in a Related Business; or (ii) the Capital Stock of a person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; provided, however, that any such Restricted Subsidiary is primarily engaged in a Related Business. For purposes of this definition, "Related Business" means any business related, 29 ancillary or complimentary (as defined in good faith by the Board of Directors) to the business of the Company and the Restricted Subsidiaries on the date of issuance of the Notes. "Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct or cause the direction of the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares and, to the extent required by local ownership laws in foreign countries, shares owned by foreign shareholders); (ii) all or substantially all the assets of any division, business segment or comparable line of business of the Company or any Restricted Subsidiary; or (iii) any other assets of the Company or any Restricted Subsidiary having a fair market value (as determined in good faith by the Board of Directors) in excess of $250,000 disposed of in a single transaction or series of related transactions outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above, a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary). "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment (assuming the exercise by the obligor of such Indebtedness of all unconditional (other than as to the giving of notice) extension options of each such scheduled payment date) of such Indebtedness multiplied by the amount of such principal payment by (ii) the sum of 30 all such principal payments. "Bank Credit Facility" means the Revolving Credit Facility and any bank credit agreement or credit facility entered into in the future by the Company or any Restricted Subsidiary, as any of the same may be amended, waived, modified, refinanced or replaced from time to time. "Capitalized Lease Obligations" means any obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with generally accepted accounting principles. "Capital Stock" of any person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Change of Control" means the occurrence of any of the following events: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause such person or group shall be deemed to have "beneficial ownership" of all shares that any such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50 percent of the total voting power of the Voting Stock of the Company; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a majority vote of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (iii) the merger or consolidation of the Company with or into another person or the merger of another person with or into the Company, or the sale of all or 31 substantially all the assets of the Company to another person, other than any such sale to one or more Restricted Subsidiaries, and in the case of any such merger or consolidation, the securities of the Company that are outstanding immediately prior to such transaction and which represent 100 percent of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation, or a parent corporation that owns all of the Capital Stock of such surviving corporation, that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation or such parent corporation, as the case may be. "Consolidated Coverage Ratio" with respect to the Company as of any date of determination means the ratio of the Company's EBITDA to its Consolidated Interest Incurred for the four fiscal quarters ending immediately prior to the date of determination. Notwithstanding clause (ii) of the definition of Consolidated Net Income, if the Indebtedness which is being Incurred is Incurred in connection with an acquisition by the Company or a Restricted Subsidiary, the Consolidated Coverage Ratio shall be determined after giving effect to both the Consolidated Interest Incurred related to the Incurrence of such Indebtedness and the EBITDA as if the acquisition had occurred at the beginning of the four fiscal quarter period (x) of the person becoming a Restricted Subsidiary,or (y) in the case of an acquisition of assets that constitute substantially all of an operating unit or business, relating to the assets being acquired by the Company or a Restricted Subsidiary. "Consolidated Interest Expense" of the Company means, for any period, the aggregate amount of interest which, in accordance with generally accepted accounting principles as in effect on the date of the issuance of the Notes, would be included on an income statement for the Company and its Restricted Subsidiaries on a consolidated basis, whether expensed directly, or included as a component of cost of goods sold, or allocated to joint ventures or otherwise (including, but not limited to, imputed interest included on Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, 32 the net costs associated with Hedging Obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premium, if any, and all other non-cash interest expense), excluding interest expense related to mortgage banking operations plus the product of (i) cash dividends paid on any Preferred Stock of the Company times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective aggregate federal, state and local tax rate of the Company, expressed as a decimal. "Consolidated Interest Incurred" of the Company means, for any period, (i) the aggregate amount of interest which, in accordance with generally accepted accounting principles as in effect on the date of the issuance of the Notes, would be included on an income statement for the Company and its Restricted Subsidiaries on a consolidated basis, whether expensed directly, or included as a component of cost of goods sold, or allocated to joint ventures or otherwise (including, but not limited to, imputed interest included on Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs associated with Hedging Obligations, amortization of discount or premium, if any, and all other non-cash interest expense), excluding interest expense related to mortgage banking operations, plus or minus, without duplication; (ii) the difference between capitalized interest for such period and the interest component of cost of goods sold for such period; plus (iii) the product of (A) cash dividends paid on any Preferred Stock of the Company, times (B) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective aggregate federal, state and local tax rate of the Company, expressed as a decimal. "Consolidated Net Income" for any period, means the aggregate of the Net Income of the Company and its Restricted Subsidiaries for such period on a consolidated basis determined in accordance with generally accepted accounting principles as in effect on the date of the issuance of the Notes, provided that (i) the Net Income of any person in which the Company or any Restricted Subsidiary has, a joint interest with a third party (other than an Unrestricted Subsidiary) shall be included only to the extent of the lesser of (A) the amount of dividends or distributions actually 33 paid to the Company or a Restricted Subsidiary or (B) the Company's direct or indirect proportionate interest in the Net Income of such person, provided that, so long as the Company or a Restricted Subsidiary has an unqualified legal right to require the payment of a dividend or distribution, Net Income shall be determined solely pursuant to clause (B); (ii) the Net Income of any person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; and (iii) the Net Income of any Unrestricted Subsidiary shall be included only to the extent of the amount of dividends or distributions (the fair value of which, if other than in cash, to be determined by the Board of Directors, in good faith) by such Subsidiary to the Company or to any of its consolidated Restricted Subsidiaries; and (iv) the Net Income of any Unrestricted Subsidiary, any Homebuilding Joint Venture or any other person in which the Company or any Restricted Subsidiary has a joint interest with a third party that is not existing on December 31, 1997 shall be included only to the extent that the aggregate amount of dividends or distributions (the fair value of which, if other than cash, to be determined by the Board of Directors, in good faith) by such Subsidiary or Homebuilding Joint Venture to the Company or to any of its consolidated Restricted Subsidiaries exceeds the aggregate amount of unpaid loans or advances and unreturned capital contributions made by the Company or any Restricted Subsidiary in or to such Subsidiary or Homebuilding Joint Venture. "Consolidated Net Worth" of the Company means consolidated stockholders' equity less any increase in stockholders' equity of each of the Unrestricted Subsidiaries subsequent to December 31, 1997 attributable to the Company or any of its Restricted Subsidiaries, as determined in accordance with generally accepted accounting principles as in effect on the date of the issuance of the Notes. "Consolidated Tangible Net Worth" with respect to the Company means the consolidated stockholders' equity of the Company, as determined in accordance with generally accepted accounting principles, as in effect on the date of the issuance of the Notes, less (i) that portion of any increase in each of the Unrestricted Subsidiaries' stockholders' equity subsequent to December 31, 1997 attributable to the Company or any of its Restricted Subsidiaries, as determined in accordance with generally accepted accounting principles, as in effect on the date of the issuance of the Notes, and (ii) the Intangible Assets of the Company and the 34 Restricted Subsidiaries. "Intangible Assets" means the amount (to the extent reflected in determining consolidated stockholders' equity) of (A) all write-ups (other than write-ups of tangible assets of a going concern business made within twelve months after the acquisition of such business) in the book value of any asset owned by the Company or any Restricted Subsidiary, and (B) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles. "Disqualified Stock" means, with respect to any person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (ii) is convertible or exchangeable, at the option of the holder thereof, for Indebtedness or Disqualified Stock; or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to February 15, 2009. Notwithstanding the foregoing, "Disqualified Stock" shall not include Capital Stock which is redeemable solely pursuant to a change in control provision that does not (A) cause such Capital Stock to become redeemable in circumstances which would not constitute a Change of Control and (B) require the Company to pay the redemption price therefor prior to the repurchase date specified under "Change of Control" above. "EBITDA" of the Company for any period means the sum of Consolidated Net Income plus Consolidated Interest Expense plus, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) depreciation expense, (iii) amortization expense and (iv) all other non-cash items reducing Consolidated Net Income (other than items that will require cash payments in the future and for which an accrual or reserve is, or is required by generally accepted accounting principals as in effect on the date of issuance of the Notes to be, made), less all non-cash items increasing Consolidated Net Income, in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating Consolidated Net Income. 35 "Hedging Obligations" of any person means the net obligations of such person pursuant to any Interest Rate Agreement or any foreign exchange contract, currency swap agreement or other similar agreement to which such person is a party or a beneficiary. "Homebuilding Joint Venture" means (i) any Unrestricted Subsidiary and (ii) any person in which the Company or any of its Subsidiaries has an ownership interest but less than a 100% ownership interest that, in each case, was formed for and is engaged in homebuilding operations. "Incur" means issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a person existing at the time such person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary; provided further, however, that in the case of a discount security, neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. The term "Incurrence" when used as a noun shall have a correlative meaning. "Indebtedness" means on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of (A) indebtedness of such person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such person is responsible or liable; (ii) all Capitalized Lease Obligations of such person; (iii) all obligations of such person issued or assumed as the deferred purchase price of property or services, all conditional sale obligations of such person and all obligations of such person under any title retention agreement (but excluding accounts payable and accrued expenses arising in the ordinary course of business and which are not more than 90 days past due and not in dispute) which would appear as a liability on a balance sheet of a person prepared on a consolidated basis in accordance with generally accepted accounting principles, which purchase price or obligation is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services (provided that, in the case of obligations of an acquired person assumed in connection with an acquisition of such person, such obligations would constitute Indebtedness of such person); (iv) all obligations of such person for the reimbursement of any 36 obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such person of a demand for reimbursement following payment on the letter of credit); (v) the amount of all obligations of such person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such person, any Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all obligations of the type referred to in clauses (i) through (v) of other persons and all dividends of other persons for the payment of which, in either case, such person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any guarantee; (vii) all obligations of the type referred to in clauses (i) through (vi) of other persons secured by any lien on any property or asset of such person (whether or not such obligation is assumed by such person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency, other than a contingency solely within the control of such person, giving rise to the obligation, of any contingent obligations as described above at such date; provided, however, that the amount outstanding at any time of any Indebtedness issued with original issue discount shall be deemed to be the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such indebtedness at such time as determined in conformity with generally accepted accounting principles. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates. 37 "Investment" in any person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such person) or other extensions of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such person. "Mortgage" means a first priority mortgage or first priority deed of trust on improved real property. "Net Income" of any person means the net income (loss) of such person, determined in accordance with generally accepted accounting principles, as in effect on the date of issuance of the Notes; excluding, however, from the determination of Net Income all gains (to the extent that they exceed all losses) realized upon the sale or other disposition (including, without limitation, dispositions pursuant to sale leaseback transactions) of any real property or equipment of such person, which is not sold or otherwise disposed of in the ordinary course of business, or of any capital stock of such person or its subsidiaries owned by such person. "Net Proceeds" means with respect to any sale, assignment, exchange, lease, transfer or other disposition of assets, the consideration received by the Company (or a Restricted Subsidiary, as the case may be) for such disposition after (a) provision for all income and other taxes resulting from such asset disposition, (b) payment of all brokerage commissions, underwriting, legal, accounting, appraisal and other fees and expenses related to such asset sale and (c) deduction of appropriate amounts to be provided by the Company or a Restricted Subsidiary as a reserve, in accordance with generally accepted accounting principles, against any liabilities associated with the assets sold or disposed of in such asset disposition and retained by the Company or a Restricted Subsidiary after such asset sale, including, without limitation, pension and other post-employment benefit liabilities and against any indemnification obligations associated with the assets sold or disposed of in such asset sale. "Non-Recourse Indebtedness" means Indebtedness or other obligations secured by a lien on property to the extent that the liability for such Indebtedness or 38 other obligations is limited to the security of the property without liability on the part of the Company or any Subsidiary (other than the Subsidiary which holds title to such property) for any deficiency. "Person" means an individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, limited liability partnership, trust, unincorporated organization, or government or any agency or political subdivision thereof. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Refinance" means, in respect of Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. "Refinancing" shall have a correlative meaning. "Restricted Investment" means any loan, advance, capital contribution or transfer (including by way of guaranty or other similar arrangement) in or to any Unrestricted Subsidiary, Homebuilding Joint Venture or any person in which the Company, directly or indirectly, has an ownership interest but less than 100 percent ownership interest; provided, however, that loans, advances, capital contributions or transfers (including by way of guaranty or other similar arrangement) to a Homebuilding Joint Venture shall be counted as a Restricted Investment only to the extent that the aggregate at any one time outstanding of all such amounts expended (or with respect to guaranties or similar arrangements the amounts then guaranteed) exceed, subsequent to December 31, 1996, $20 million for any one Homebuilding Joint Venture or $80 million in the aggregate for all Homebuilding Joint Ventures. Restricted Investment shall include the fair market value of the net assets of any Restricted Subsidiary that at any time is designated an Unrestricted Subsidiary. Any property transferred to an Unrestricted Subsidiary, and the net assets of a Restricted Subsidiary that is designated an Unrestricted Subsidiary, shall be valued at fair market value at the time of such transfer, in each case as 39 determined by the Board of Directors of the Company in good faith. The net assets of Panel Concepts shall not be counted as a Restricted Investment if (i) a sale of all or a portion of the Capital Stock of Panel Concepts causes Panel Concepts to become an Unrestricted Subsidiary; (ii) at the time of such sale, the net book value of the assets of Panel Concepts represent less than 10 percent of the consolidated assets of the Company and its Restricted Subsidiaries; and (iii) the net proceeds of any such sale and any subsequent sale of the Capital Stock of Panel Concepts to any person other than the Company or any Restricted Subsidiary are paid or distributed to the Company or any Restricted Subsidiary. "Restricted Subsidiary" means any Wholly-Owned Subsidiary that has not been designated an Unrestricted Subsidiary. "Subsidiary" means a corporation, a majority of the capital stock with voting power to elect directors of which is directly or indirectly owned by the Company and its Subsidiaries, or any person in which the Company and its Subsidiaries have at least a majority ownership interest. "Unrestricted Subsidiary" means (i) any Subsidiary in which the Company, directly or indirectly, has less than a 100% ownership interest; (ii) any Wholly Owned Subsidiary which in accordance with paragraph (m)(viii) above has been designated in a resolution adopted by the Board of Directors of the Company as an Unrestricted Subsidiary, in each case unless and until such Subsidiary shall be designated as a Restricted Subsidiary in accordance with paragraph (m)(viii) above; and (iii) any Wholly-Owned Subsidiary a majority of the voting stock of which shall at the time be owned directly or indirectly by one or more Unrestricted Subsidiaries. "Voting Stock", with respect to any person, means securities of any class of Capital Stock of such person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the board of directors of such person. "Warehouse Facility" means a Bank Credit Facility to finance the making of Mortgage loans originated by the Company or any of its Subsidiaries. 40 "Wholly Owned Subsidiary" means a Subsidiary, all of the capital stock (whether or not voting, but exclusive of directors' qualifying shares) of which is owned by the Company or a Wholly-Owned Subsidiary. (remainder of page left intentionally blank) 41 Each of the undersigned, for himself, states that he has read and is familiar with the provisions of Article Two of the Indenture relating to the establishment of a series of Securities thereunder and the establishment of forms of Securities representing a series of Securities thereunder and, in each case, the definitions therein relating thereto; that he is generally familiar with the other provisions of the Indenture and with the affairs of the Company and its acts and proceedings and that the statements and opinions made by him in this Officers' Certificate are based upon such familiarity; and that he has made such examination or investigation as is necessary to enable him to determine whether or not the covenants and conditions referred to above have been complied with; and in his opinion, such covenants and conditions have been complied with. IN WITNESS WHEREOF, the undersigned has hereunto signed this Certificate on behalf of the Company this 10th day of February, 1998. STANDARD PACIFIC CORP. By:_______________________________ Name: Stephen J. Scarborough Title: President By:_______________________________ Name: Andrew H. Parnes Title: Vice President-Finance, Treasurer and Chief Financial Officer S-1 EXHIBIT A NO. R-1 STANDARD PACIFIC CORP. $[_________] CUSIP NO.: [_________] THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXCEPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (A) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (D) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED THAT IN THE CASE OF A TRANSFER PURSUANT TO THIS CLAUSE (D), SUCH TRANSFER IS EFFECTED BY THE DELIVERY TO THE TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED IN ITS NAME (OR ITS NOMINEE'S NAME) IN THE BOOKS MAINTAINED BY THE REGISTRAR, AND IS SUBJECT TO THE RECEIPT BY THE REGISTRAR (AND THE COMPANY, IF IT SO REQUESTS) OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION, TO THE ISSUER OR ITS AGENT FOR THE REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. Standard Pacific Corp., a Delaware corporation, promises to pay to Cede & Co., or registered assigns, the principal sum of [____________] Million Dollars ($[____________]) on February 15, 2008. 8% SENIOR NOTE DUE 2008 Interest Payment Dates: February 15 and August 15 Record Dates: February 1 and August 1 Dated: February 10, 1998 STANDARD PACIFIC CORP. By:______________________________________ Name:____________________________________ Title:___________________________________ Attest: ________________________________________ Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION This Note is one of the Securities referred to in the within mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By:______________________________________ Authorized Signatory STANDARD PACIFIC CORP. 8% SENIOR NOTE DUE 2008 1. Interest. Standard Pacific Corp., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company will pay interest semiannually on February 15 and August 15 of each year (the "Interest Payment Date"), commencing August 15, 1998. Interest on the Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 10, 1998 or, in the case of a note issued after August 15, 1998, the Interest Payment Date next preceding the date of issuance of such note. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Overdue principal and, to the extent payment of such interest shall be legally enforceable, overdue installments of interest shall bear interest at the rate per annum shown above. 2. Method of Payment. The Company will pay interest on the Notes (except default interest, which shall be payable in the manner provided in Section 2.13 of the Indenture) to the persons who are registered holders of Notes at the close of business on the February 1 or August 1 next preceding the Interest Payment Date (the "Record Date"). Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by its check payable in such money. It may mail an interest check to a Holder's registered address. 3. Paying Agent and Registrar. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture. The Company issued the Notes under an Indenture dated as of April 1, 1992 (the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture, those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)77aaa-77bbbb) (the "Act") as in effect on the date of the Indenture and as may be amended from time to time, and those incorporated by reference into the Indenture pursuant to an Officers' Certificate of the Company dated February 10, 1998 (the "Officers' Certificate") delivered pursuant to Sections 2.01 and 2.03(a) of the Indenture. The Notes are subject to and governed by all such terms, and holders of Notes are referred to the Indenture, the Officers' Certificate and the Act for a statement of them. All capitalized terms used in this Note and not otherwise defined herein shall have the meanings set forth in the Indenture and the Officers' Certificate. The Notes are general unsecured obligations of the Company limited to the A-3 aggregate principal amount of $175,000,000. 5. Optional Redemption. The Notes will not be redeemable at the option of the Company prior to February 15, 2003. Thereafter, the Notes will be redeemable, at the Company's option, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on February 15 of the years set forth below:
Redemption Year Price ---- ---------- 2003........................................... 104.00% 2004........................................... 102.67% 2005........................................... 101.33% 2006 and thereafter............................ 100.00%
6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $1,000 may be redeemed in part. On and after the redemption date interest ceases to accrue on Notes or portions of them called for redemption. 7. Selection. If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate. 8. Mandatory Repurchase Obligation. If there is a Change of Control of the Company, the Holder of this Note shall have the right to require the Company to repurchase all or a portion of this Note at a purchase price equal to 101% of the principal amount hereof plus accrued and unpaid interest to the date of repurchase, as provided in, and subject to the terms of, the Indenture. In addition, under certain circumstances, if the Company fails to maintain a certain specified minimum Consolidated Net Worth or engages in certain asset sales, the Company shall be required to offer to purchase a portion of the aggregate principal amount of Notes outstanding together with accrued and unpaid interest to the date of purchase, as provided in, and subject to the terms of, the Indenture. A-4 9. Denominations, Transfer, Exchange. If the Notes are issued in global form, and this Note contains a legend in the face hereof to such effect, the provisions of this Section 9 shall be deemed superseded by such legend and Section 3(c) of the Officers Certificate, to the extent the provisions of this Section 9 are inconsistent with such legend of Section 3(c). The Notes are issuable in registered form, without coupons, in denominations of $1,000 and any amount in excess thereof which is an integral multiple of $1,000. As provided in the Indenture and subject to certain limitations therein set forth, Notes are exchangeable for a like aggregate principal amount of Notes of like tenor of any authorized denomination, as requested by the Holder surrendering the same, upon surrender of the Note or Notes to be exchanged at any office or agency where Notes may be presented for registration of transfer. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of Notes is registrable in the register of Notes upon surrender of a Note for registration of transfer at the Corporate Trust Office of the Trustee in the Borough of Manhattan, The City of New York, or at the office of any transfer agent hereafter designated by the Company for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of like tenor, of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge shall be made by the Company, the Trustee or the Registrar for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection therewith (other than exchanges pursuant to Sections 2.11, 3.06 or 9.05 of the Indenture not involving any transfer). 10. Person Deemed Owner. The registered holder of a Note may be treated as the owner of it for all purposes. 11. Amendment, Waiver. The Indenture permits, in certain circumstances therein specified, the amendment thereof without the consent of the Holders of the Notes. The Indenture also permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations under the Indenture of the Company and the rights of Holders of the Notes at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holders shall be conclusive and binding upon the Holder of this Note and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. A-5 12. Successor Corporation. When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor corporation will be released from those obligations. 13. Defaults and Remedies. The following are Events of Default: (i) failure by the Company to pay interest on the Notes when due which default continues for a period of 30 days or the principal of the Notes when due; (ii) failure by the Company to perform any other covenant in the Notes or the Indenture for 45 days after receipt by the Company of a Notice of Default; (iii) default under any mortgage, indenture (including the Indenture) or instrument under which is issued or which secures or evidences Indebtedness of the Company or any Restricted Subsidiary (other than Non-Recourse Indebtedness) which default constitutes a failure to pay principal of such Indebtedness in an amount of $20,000,000 or more when due and payable (other than as a result of acceleration) or results in Indebtedness (other than Non-Recourse Indebtedness) in the aggregate of $20,000,000 or more becoming or being declared due and payable before it would otherwise become due and payable; (iv) entry of a final judgment for the payment of money against the Company or any Restricted Subsidiary in an amount of $5,000,000 or more which remains undischarged or unstayed for a period of 60 days after the date on which the right to appeal such judgment has expired or become subject to an enforcement proceeding; or (v) certain events of bankruptcy, insolvency or reorganization. In case an Event of Default (other than arising out of certain events of bankruptcy, insolvency or reorganization) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes at the time Outstanding, by notice in writing to the Company (and to the Trustee if given by the Holders), may declare to be due and payable immediately that portion of the principal amount of the Notes at the time Outstanding and accrued and unpaid interest if any, to the date of acceleration and upon such declaration the same shall become and be immediately due and payable. In case an Event of Default arising out of certain events of bankruptcy, insolvency or reorganization occurs and is continuing, the outstanding principal of and accrued and unpaid interest if any, on the Notes shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any of the Holders. Such declaration or acceleration and its consequences may be rescinded by Holders of a majority in aggregate principal amount of Notes at the time Outstanding if all existing Events of Default have been cured or waived (except non-payment of principal that has become due solely because of the acceleration) and if the rescission would not conflict with any judgment or decree. An existing Default (other than a default in payment of principal of or interest on the Notes or default with respect to a provision which cannot be modified under the terms of the Indenture without the consent of each Note Holder affected) may be waived by the Holders of a majority in aggregate principal amount of Notes at the time Outstanding upon the conditions provided in the Indenture. A-6 14. Trustee Dealings with Company. United States Trust Company of New York, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates, with the same rights it would have if it were not Trustee. 15. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 16. Authentication. This Security shall not be valid until the Trustee signs the certificate of authentication on the second page of this Note. A-7 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT......Custodian..... (Cust.) (Minor) TEN ENT - as tenants by the Under Uniform Gifts to entireties Minors Act JT TEN - as joint tenants with right of survivorship and not as ..................... tenants in common (State) Additional abbreviations may also be used though not in the above list. ----------------------- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto Please Insert Social Security or Employer Identification Number of Assignee - -------------------------------------- - - - -------------------------------------- ________________________________________________________________________________ Please Print or Typewrite Name and Address Including Postal Zip Code of Assignee _____________________________________________________________________________the within Security and all rights thereunder, hereby irrevocably constituting and appointing ________________________________________________________________________attorney to Transfer said Security on the books of the Company, with full power of substitution in the premises. Dated: ______________________________ Signature _______________________________ NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within note in every particular, without alteration or enlargement or any change whatever. A-8 CERTIFICATE OF TRANSFER ----------------------- In connection with the transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Securities and Exchange Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resale of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) February 10, 2000, the undersigned confirms that it has not utilized any general solicitation or general advertisement in connection with this transfer and that this Security is being transferred: [Check One] (1) _________ to the Company or a subsidiary thereof; or (2) _________ pursuant to and in compliance with Rule 144A under the Securities Act; or (3) _________ to an institutional "accredited investor" (as defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which can be obtained from the Trustee); or (4) _________ outside of the United States to a "Non-U.S. Person" in compliance with Rule 904 of Regulation S under the Securities Act; or (5) _________ pursuant to an exemption from registration provided by Rule 144 under the Securities Act; or (6) _________ pursuant to an effective registration statement under the Securities Act; or (7) _________ pursuant to another available exemption from the registration requirements of the Securities Act. Unless one of the items is checked, the Trustee will refuse to register any of the Securities evidenced by this Certificate in the name of any person other than the registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Securities, in its sole discretion, such legal opinions, certifications (including an investment letter in the case of box (3) or (4)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. If none of the foregoing items is checked, the Trustee shall not be obligated to register this Security in the name of any person other than the Holder hereof, unless and until the conditions to any such transfer of registration set forth herein and in paragraph (c)(iv) of the Officers' Certificate, dated February 10, 1998, relating to the Securities shall have been satisfied. Dated:_______________ Your Signature:_________________________ Sign exactly as your name appears on the first page of this Security A-9 TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and the undersigned is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information, regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: Signature:_________________________________ Name: Title: A-10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased or redeemed by the Company pursuant to the Indenture, check the box: [_] If you want to elect to have only part of this Security purchased by the Company pursuant to paragraphs 3(j), 3(m)(i) or 3(m)(v) of the Officers' Certificate adopted pursuant to Sections 2.01 and 2.03 of the Indenture, state the amount. $_____________ Date:_________________ Your Signature:_________________________________________ (Sign exactly as your name appears on the first page of this Security) Signature Guarantee:_____________________________ NOTICE: Signature(s) must be guaranteed by a member firm of a major stock exchange or a commercial bank or Trust company. A-11 EXHIBIT B FORM OF INSTITUTIONAL ACCREDITED INVESTOR LETTER We are delivering this letter in connection with a proposed purchase of 8% Senior Notes due 2008 (the "Notes") of Standard Pacific Corp. (the "Company"). We hereby confirm that: (i) we are an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act"), or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (an "Institutional Accredited Investor"); (ii) any purchase of Notes by us will be for our own account or for the account of one or more other Institutional Accredited Investors; (iii) in the event that we purchase Notes, we will acquire Notes having a minimum purchase price of at least $100,000 for our own account and for each separate account for which we are acting; (iv) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing Notes; (v) we are not acquiring Notes with a view to any distribution thereof in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdiction; provided that the disposition of our property and the property of any accounts for which we are acting as fiduciary shall remain at all times within our control; and (vi) we acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase Notes. We understand that the Notes are being offered in a transaction not involving any public offering within the meaning of the Securities Act and that the Notes have not been registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire Notes, that such Notes may be offered, resold, pledged or otherwise transferred only (i) to a person whom we reasonably believe to be a qualified institutional buyer (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, in a transaction meeting the requirements of Rule 144, outside the B-1 United States in a transaction meeting the requirements of Rule 904 under the Securities Act, or in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (ii) to the Company or (iii) pursuant to an effective registration statement, and, in each case, in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction. We understand that the registrar will not be required to accept for registration of transfer any Notes, except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. We further understand that the Notes purchased by us will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of this paragraph. We acknowledge that you and others will rely upon our confirmations, acknowledgments and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate and complete. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. ________________________________ (Name of Purchaser) By: ___________________________ Name: Title: Address: ________________________________ ________________________________ ________________________________ B-2 EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S [Date] United States Trust Company of New York [Address] Re: Standard Pacific Corp (the "Company") 8% Senior Notes Due 2008 (the "Note") ------------------------------------- Ladies and Gentlemen: In connection with the proposed sale of $__________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) The offer of the Notes was not made to a person in the United States; (2) Either (a) at the time the buy offer was originated, the transferee was outside of the United States or we and any person acting on our behalf reasonably believe that the transferee was outside of the United States, or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither we nor any person acting on our behalf knows that the transaction has been prearranged for a buyer in the United States; (3) No directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) The transaction is not part of a plan or a scheme to evade the registration requirements of the Securities Act; and (5) We have advised the transferee of the transfer restrictions applicable to the Notes. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a C-1 copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By:______________________________ Authorized Signature C-2 EX-4.5 3 REGISTRATION RIGHTS AGREEMENT DATED 2/5/98 EXHIBIT 4.5 ________________________________________________________________________________ REGISTRATION RIGHTS AGREEMENT Dated as of February 5, 1998 by and among STANDARD PACIFIC CORP., SBC WARBURG DILLON READ INC., BANCAMERICA ROBERTSON STEPHENS and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ________________________________________________________________________________ TABLE OF CONTENTS
PAGE ---- SECTION 1. DEFINITIONS............................................. 1 SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT.................... 4 (a) Transfer Restricted Securities............................ 4 ------------------------------ (b) Holders of Transfer Restricted Securities................. 4 ----------------------------------------- SECTION 3. REGISTERED EXCHANGE OFFER............................... 4 SECTION 4. SHELF REGISTRATION...................................... 6 (a) Shelf Registration........................................ 6 ------------------ (b) Provision by Holders of Certain Information in ---------------------------------------------- Connection with the Shelf Registration Statement.......... 7 ------------------------------------------------ SECTION 5. LIQUIDATED DAMAGES...................................... 7 SECTION 6. REGISTRATION PROCEDURES................................. 8 (a) Exchange Offer Registration Statement..................... 8 ------------------------------------- (b) Shelf Registration Statement.............................. 10 ---------------------------- (c) General Provisions........................................ 10 ------------------ SECTION 7. REGISTRATION EXPENSES................................... 18 SECTION 8. INDEMNIFICATION......................................... 19 SECTION 9. RULE 144A............................................... 24 SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS............ 24 SECTION 11. SELECTION OF UNDERWRITERS.............................. 25 SECTION 12. MISCELLANEOUS.......................................... 25 (a) Remedies.................................................. 25 -------- (b) No Inconsistent Agreements................................ 25 -------------------------- (c) Adjustments Affecting the Notes........................... 25 ------------------------------- (d) Amendments and Waivers.................................... 25 ---------------------- (e) Notices................................................... 26 ------- (f) Successors and Assigns.................................... 26 ---------------------- (g) Counterparts.............................................. 26 ------------ (h) Captions.................................................. 26 -------- (i) Governing Law............................................. 27 ------------- (j) Submission to Jurisdiction................................ 27 -------------------------- (k) Severability.............................................. 27 ------------ (l) Entire Agreement.......................................... 27 ----------------
i This Registration Rights Agreement (the "Agreement") is made and entered --------- into as of February 5, 1998 by and among STANDARD PACIFIC CORP., a Delaware corporation (the "Company"), and SBC WARBURG DILLON READ INC., BANCAMERICA ------- ROBERTSON STEPHENS and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION (the "Initial Purchasers"). The execution and delivery of this Agreement is a ------------------ condition to the obligations of the Initial Purchasers to purchase $100,000,000 of the Company's 8% Senior Notes due 2008 under the Purchase Agreement, dated as of February 5, 1998 (the "Purchase Agreement"), by and among the Company and the ------------------ Initial Purchasers. The Company and the Initial Purchasers hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Act: The Securities Act of 1933, as amended, and the rules and regulations --- promulgated by the Commission pursuant thereto. Broker-Dealer: Any broker or dealer registered under the Exchange Act. ------------- Business day: Any day except Saturday, Sunday or any day which shall be a ------------ legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close. Closing Date: The date that the Notes are purchased by the Initial ------------ Purchasers pursuant to the Purchase Agreement. Commission: The Securities and Exchange Commission. ---------- Consummate: The Exchange Offer shall be deemed "Consummated" for purposes ---------- of this Agreement upon the occurrence of (i) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the New Notes to be issued in the Exchange Offer, (ii) the maintenance of such Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the minimum period required pursuant to Section 3(b) of this Agreement and (iii) the delivery by the Company to the Registrar under the Indenture of New Notes in the same aggregate principal amount as the aggregate principal amount of Old Notes that were so tendered. Damages Payment Date: With respect to the Notes, each Interest Payment -------------------- Date. 1 Effectiveness Target Date: As defined in Section 5 of this Agreement. ------------------------- Exchange Act: The Securities Exchange Act of 1934, as amended, and the ------------ rules and regulations promulgated by the Commission pursuant thereto. Exchange Offer: The registration under the Act by the Company of the New -------------- Notes pursuant to a Registration Statement pursuant to which the Company offers the Holders of all outstanding Transfer Restricted Securities the opportunity to exchange all such outstanding Old Notes that are Transfer Restricted Securities held by such Holders for New Notes in an aggregate principal amount equal to the aggregate principal amount of the Old Notes that are Transfer Restricted Securities tendered in such exchange offer by such Holders. Exchange Offer Effective Date: The dated on which the Exchange Offer ----------------------------- Registration Statement is declared effective by the Commission. Exchange Offer Registration Statement: The Registration Statement ------------------------------------- relating to the Exchange Offer, including the related Prospectus. Exempt Resales: The transactions in which the Initial Purchasers propose -------------- to sell the Notes to (i) certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act, and (ii) other eligible purchasers pursuant to Regulation S under the Act. Holder(s): As defined in Section 2(b) of this Agreement. --------- Indenture: The Indenture, dated as of April 1, 1992, by and between the --------- Company and United States Trust Company of New York, as trustee (the "Trustee"), ------- pursuant to which the Notes are to be issued, as such Indenture is amended or supplemented from time to time in accordance with its terms. Interest Payment Date: As defined in the Notes. --------------------- NASD: National Association of Securities Dealers, Inc. ---- New Notes: The Company's 8% Senior Notes due 2008 to be issued pursuant to --------- the Indenture in connection with the Exchange Offer and evidencing the same debt as the Old Notes. Notes: Old Notes and New Notes. ----- Old Notes: The Company's 8% Senior Notes due 2008 to be issued pursuant to --------- the Indenture on the Closing Date. 2 Participating Broker Dealer: As defined in Section 6(a)(iii) of this --------------------------- Agreement. Person: An individual, partnership, corporation, trust or unincorporated ------ organization, or a government or agency or political subdivision thereof. Prospectus: The prospectus included in any Registration Statement, as ---------- amended or supplemented by any prospectus supplement and by all other amendments and supplements thereto, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such Prospectus. Registration Default: As defined in Section 5 of this Agreement. -------------------- Registration Statement: Any registration statement of the Company relating ---------------------- to (a) an offering of New Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement that is filed pursuant to the provisions of this Agreement, in each case, including the Prospectus included therein, all amendments and supplements thereto (including pre-and post-effective amendments) and all exhibits and material incorporated by reference or deemed to be incorporated by reference, if any, therein. Shelf Filing Deadline: As defined in Section 4(a) of this Agreement. --------------------- Shelf Registration Statement: As defined in Sec tion 4(a) of this ---------------------------- Agreement. Subsidiary: With respect to any Person, any other Person of which a ---------- majority of the equity ownership or the voting securities is at the time owned, directly or indirectly, by such Person or by one or more other subsidiaries of such Person or a combination thereof. TIA: The Trust Indenture Act of 1939, as amended (15 U.S.C. Section --- 77aaa-77bbbb), as in effect on the date of the Indenture. Transfer Restricted Securities: Each Note until the earliest to occur of ------------------------------ (i) the date on which each such Old Note has been exchanged by a person other than a Broker-Dealer for a New Note in the Exchange Offer, (ii) following the exchange by a Broker-Dealer in the Exchange Offer of an Old Note for a New Note, the date on which such New Note is sold to a purchaser who receives from such Broker-Dealer on or prior to the date of such sale a copy of the Prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Note has 3 been effectively registered under the Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Note is distributed (or is eligible to be) to the public pursuant to Rule 144 under the Act. Underwritten Registration or Underwritten Offering: A registration in -------------------------------------------------- which securities of the Company are sold to an underwriter for reoffering to the public pursuant to an effective Registration Statement. SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT (a) Transfer Restricted Securities. The securities entitled to the ------------------------------ benefits of this Agreement are the Transfer Restricted Securities. (b) Holders of Transfer Restricted Securities. A Person is deemed to be a ----------------------------------------- holder of Transfer Restricted Securities (each, a "Holder") whenever such Person ------ beneficially owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless, due to a change in law or Commission policy after the date hereof, the Exchange Offer shall not be permissible under applicable federal law or Commission policy, the Company shall (i) cause to be filed with the Commission as soon as practicable on or prior to 60 days after the Closing Date, a Registration Statement under the Act relating to the New Notes and the Exchange Offer and (ii) use its best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable on or prior to 120 days after the Closing Date. In connection with the foregoing, the Company shall (A) file all pre-effective amendments to such Registration Statement as may be necessary to cause such Registration Statement to become effective, (B) if applicable, file a post-effective amendment to such Registration Statement pursuant to Rule 430A under the Act, (C) cause all necessary filings in connection with the registration and qualification of the New Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer (provided, however, that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to take any action that would subject it to general service of process or taxation in any jurisdiction where it is not so subject, except service of process with respect to the offering and sale of the Notes) and (D) upon the effectiveness of such Registration Statement, commence the Exchange Offer and use its best efforts to issue on or prior to 45 days after the Exchange Offer Effective Date, New Notes in exchange for all Old Notes tendered in the Exchange Offer. The Exchange Offer Registration Statement shall be on the appropriate form permitting registration of the New Notes to be offered in 4 exchange for the Transfer Restricted Securities and to permit resales of New Notes held by Broker-Dealers as contemplated by Section 3(c) below. If, after such Exchange Offer Registration Statement initially is declared effective by the Commission, the Exchange Offer or the issuance of New Notes under the Exchange Offer or the resale of New Notes received by Broker-Dealers in the Exchange Offer as contemplated by Section 3(c) below is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Registration Statement shall be deemed not to have become effective for purposes of this Agreement during the period that such stop order, injunction or other similar order or requirement shall remain in effect. (b) The Company shall cause the Exchange Offer Registration Statement to be continuously effective and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no -------- ------- event shall such period be less than 20 business days. The Company shall cause the Exchange Offer to comply with all applicable federal and state securities laws. The Company shall only offer to exchange New Notes for Old Notes in the Exchange Offer, and only the New Notes shall be registered under the Exchange Offer Registration Statement. (c) The Company shall indicate in a "Plan of Distribution" section contained in the Prospectus included in the Exchange Offer Registration Statement that any Broker-Dealer that holds Old Notes that are Transfer Restricted Securities and that were acquired for its own account as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Company), may exchange such Old Notes pursuant to the Exchange Offer; provided, however, that such Broker-Dealer -------- ------- may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with any resales of the New Notes received by such Broker-Dealer in the Exchange Offer. Such "Plan of Distribution" section shall allow the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Act, including Participating Broker-Dealers, and shall also contain all other information with respect to such resales by Broker-Dealers that the Commission may require to permit such resales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer except to the extent required by the Commission as a result of a change in policy after the date of this Agreement. During the period required by Section 3(b) above, the Company shall use its best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and 5 amended as required by the provisions of Section 6(c) below to the extent necessary to ensure that it is available for resales of Notes acquired by Broker-Dealers for their own accounts as a result of market-making activities or other trading activities, and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time. The Company shall provide sufficient copies of the latest version of such Prospectus to Broker-Dealers promptly upon request at any time during such period in order to facilitate such resales. Unless otherwise agreed by the Company, no Broker-Dealer shall deliver such Prospectus after the expiration of the period required by Section 3(b). SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Company is not required to file an ------------------ Exchange Offer Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy or (ii) any Holder of Transfer Restricted Securities shall notify the Company within 20 business days after the commencement of the Exchange Offer that such Holder (A) is prohibited by applicable law or Commission policy from participating in the Exchange Offer, or (B) may not resell the New Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (C) is a Broker-Dealer and holds Old Notes (including the Initial Purchaser who holds Old Notes as part of an unsold allotment from the original offering of the Notes) acquired directly from the Company or one of its affiliates or (iii) the Company does not consummate the Exchange Offer within 45 days following the effectiveness date of the Exchange Offer Registration Statement, then the Company shall (x) cause to be filed a shelf registration statement pursuant to Rule 415 under the Act, which may be an amendment to the Exchange Offer Registration Statement (in either event, the "Shelf Registration Statement"), on ---------------------------- or prior to the earliest to occur of (1) the 60th day after the date on which the Company determines that it is not required to file the Exchange Offer Registration Statement or (2) the 60th day after the date on which the Company receives notice from a Holder of Transfer Restricted Securities as contemplated by clause (ii) above (such earliest date being the "Shelf Filing Deadline"), --------------------- which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities the Holders of which shall have provided the information required pursuant to Section 4(b) of this Agreement, and (y) use its best efforts to cause such Shelf Registration Statement to be declared effective by the Commission on or before the 120th day after the Shelf Filing Deadline. The Company shall use its best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions 6 of Sections 6(b) and (c) of this Agreement to the extent necessary to ensure that it is available for resales of Notes by the Holders of Transfer Restricted Securities entitled to the benefit of this Section 4(a) and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a continuous period of two years following the date on which such Shelf Registration Statement becomes effective under the Act or such shorter period that will terminate when all the Notes covered by the Shelf Registration Statement have been sold pursuant to such Shelf Registration Statement. (b) Provision by Holders of Certain Information in Connection with the ------------------------------------------------------------------ Shelf Registration Statement. No Holder of Transfer Restricted Securities may - ---------------------------- include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 10 business days after receipt of a request therefor, such information regarding such Holder as the Company may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included in such Shelf Registration Statement. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5. LIQUIDATED DAMAGES If (i) any of the Registration Statements required by this Agreement is not filed with the Commission on or prior to the date specified for such filing in this Agreement, (ii) any of such Registration Statements has not been declared effective by the Commission on or prior to the date specified for such effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the ------------------------- Exchange Offer has not been Consummated within 30 business days after the Exchange Offer Effective Date with respect to the Exchange Offer Registration Statement or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or usable in connection with the Exchange Offer or resales of Transfer Restricted Securities, as applicable, during the periods required by this Agreement (each such event referred to in clauses (i) through (iv), a "Registration Default"), -------------------- the Company hereby agrees to pay liquidated damages to each Holder of Transfer Restricted Securities with respect to the first 90-day period immediately following the occurrence of such Registration Default, in an amount equal to $.05 per week per $1,000 principal amount of Notes constituting Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 7 in principal amount of Notes constituting Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.30 per week per $1,000 in principal amount of Notes constituting Transfer Restricted Securities (regardless of whether one or more than one Registration Default is outstanding). Notwithstanding the foregoing, the Company shall not be required to pay liquidated damages to Holders of Transfer Restricted Securities if the Registration Default arises from the failure of the Company to file, or cause to become effective, a Shelf Registration Statement within the time period required by Section 4 of this Agreement and such Registration Default is by reason of the failure of a Holder to provide the information regarding the Holder reasonably requested by the Company, the NASD or any other regulatory agency having jurisdiction over the Company or any of the Holders at least 10 business days prior to such Registration Default. All accrued liquidated damages shall be paid by the Company on each Damages Payment Date to the Holders by wire transfer of immediately available funds or by federal funds check and to the Holders of certificated securities by mailing a check to such Holders' registered addresses. Following the cure of all Registration Defaults relating to any particular Transfer Restricted Securities, the accrual of liquidated damages with respect to such Transfer Restricted Securities will cease. All obligations of the Company set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Transfer Restricted Security shall have been satisfied in full. The parties hereto agree that the liquidated damages provided in this Section 5 constitute a reasonable estimate of, and are intended to constitute, the sole damages that will be suffered by the holders by reason of any Registration Default. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange ------------------------------------- Offer, the Company shall comply with all of the provisions of Section 6(c) below, shall use its best efforts to effect such exchange, and shall comply with all of the following provisions: (i) If, due to a change in law or Commission policy after the date hereof, in the reasonable opinion of counsel to the Company there is a question as to whether the Exchange Offer is permitted by applicable federal law or Commission policy, the Company hereby agrees to seek a no- 8 action letter or other favorable decision from the Commission allowing the Company to Consummate an Exchange Offer for such Old Notes. The Company hereby agrees to pursue the issuance of such a no-action letter or favorable decision to the Commission staff level but shall not be required to take commercially unreasonable action to effect a change of Commission policy. The Company hereby agrees, however, to (A) participate in telephonic conferences with the Commission, (B) deliver to the Commission an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursue a resolution (which need not be favorable) by the Commission of such submission. The Initial Purchasers shall be given prior notice of any action taken by the Company under this clause (i). (ii) As a condition to its participation in the Exchange Offer pursuant to the terms of this Agreement, each Holder of Transfer Restricted Securities shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the New Notes to be issued in the Exchange Offer and (C) it is acquiring the New Notes in its ordinary course of business. In addition, all such Holders of Transfer Restricted Securities shall otherwise cooperate in the Company's preparations for the Exchange Offer. (iii) The Company and the Initial Purchasers acknowledge that the staff of the Commission has taken the position that any broker-dealer that owns New Notes that were received by such broker-dealer for its own account in the Exchange Offer (a "Participating Broker-Dealer") may be deemed to be --------------------------- an "underwriter" within the meaning of the Act and must deliver a prospectus meeting the requirements of the Act in connection with any resale of such New Notes (other than a resale of an unsold allotment resulting from the original offering of the Notes). The Company and the Initial Purchasers also acknowledge that it is the Commission staff's position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker- Dealers may resell the New Notes, without naming the Participating Broker- Dealers or specifying the amount of New Notes owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their 9 prospectus delivery obligations under the Act in connection with resales of New Notes for their own accounts, so long as the Prospectus otherwise meets the requirements of the Act. (b) Shelf Registration Statement. In the event that a Shelf ---------------------------- Registration Statement is required by this Agreement, the Company shall comply with all the provisions of Section 6(c) of this Agreement and shall use its best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution of such Transfer Restricted Securities and, in connection therewith, the Company will as expeditiously as possible prepare and file with the Commission a Shelf Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution of such Transfer Restricted Securities. (c) General Provisions. In connection with any Registration Statement ------------------ and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities (including, without limitation, any Registration Statement and the related Prospectus, to the extent that the same are required to be available to permit resales of Notes by Broker-Dealers), the Company shall: (i) use its best efforts to keep such Registration Statement continuously effective for the applicable time period required hereunder and provide all requisite financial statements for the periods specified in Section 3 or 4 of this Agreement, as applicable; upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for the Exchange Offer or the resale of Transfer Restricted Securities, as applicable, during the period required by this Agreement, the Company shall promptly notify the Holders to suspend use of the Prospectus, and the Holders shall suspend use of the Prospectus, and such Holders shall not communicate non-public information to any third party, in violation of the securities laws, until the Company has made an appropriate amendment to such Registration Statement, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), the Company shall use its best efforts to cause such amendment to be declared effective and such Registration Statement and the related Prospectus to become usable for their intended purpose(s) as soon as practicable thereafter; (ii) prepare and file with the Commission such amendments and post- effective amendments to such Registration 10 Statement as may be necessary to keep the Registration Statement effective for the applicable periods set forth in Section 3 or 4 of this Agreement, as applicable, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act during the applicable time period required hereunder and to comply fully with the applicable provisions of Rules 424 and 430A under the Act in a timely manner; and comply with the provisions of the Act and the Exchange Act with respect to the disposition of all Transfer Restricted Securities covered by such Registration Statement during such period in accordance with the intended method or methods of distribution by the sellers of such securities set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (iii) advise the underwriter(s), if any, the Initial Purchasers, and, in the case of a Shelf Registration Statement, each of the selling Holders promptly and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus or any prospectus supplement or post- effective amendment has been filed and, with respect to any Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating to such Registration Statement or Prospectus, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement to such Registration Statement or Prospectus, as the case may be, or any document incorporated by reference in such Registration Statement or Prospectus untrue in any material respect, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements in such Registration Statement or Prospectus not misleading and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order 11 suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) furnish to each of the underwriter(s), if any, the Initial Purchasers and, in the case of a Shelf Registration Statement, each of the selling Holders before filing with the Commission, copies of any Registration Statement or any Prospectus included in such Registration Statement or Prospectus or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the reasonable review of such underwriter(s), if any, the Initial Purchasers, and such Holders for a period of at least five business days prior to the initial filing of such Registration Statement (or two business days in the case of any amendment or supplement to any Prospectus or any document incorporated by reference), and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus, as the case may be, (including all such documents incorporated by reference) to which any underwriter, Initial Purchaser or selling Holder shall reasonably object within such five or two, as applicable, business days after the receipt of such Registration Statement or Prospectus. A selling Holder or underwriter, if any, shall be deemed to have reasonably objected to such filing if such Registration Statement, Prospectus, amendment or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission; (v) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, (a) provide copies of such document to the selling Holders and to the underwriter(s), if any, (b) make the Company's representatives available to respond to inquiries regarding such document and other customary due diligence matters as the selling Holders or underwriter(s), if any, may reasonably request; provided that such discussion and due diligence shall -------- be coordinated on behalf of the selling Holders by one counsel designated by and on behalf of such selling Holders and (c) include such information in such document prior to the filing of such document as such selling Holders or underwriter(s), if any, may reasonably request; (vi) make available at reasonable times for inspection by the selling Holders, any underwriter participating in any 12 disposition pursuant to such Registration Statement and any attorney or accountant retained by such selling Holders or any of the underwriter(s), if any, at the offices where normally kept, during reasonable business hours, all relevant financial and other records, pertinent corporate documents and properties of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant in connection with such Registration Statement subsequent to the filing thereof and prior to its effectiveness; provided, however, that such persons shall first agree -------- ------- in writing with the Company that any information that is designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons, unless and to the extent that (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of the Shelf Registration Statement or the use of any Prospectus), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such person or (iv) such information becomes available to such person from a source other than the Company and its Subsidiaries and such source is not bound by a confidentiality agreement; (vii) if requested by any selling Holders or the underwriter(s), if any, promptly incorporate in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities, information with respect to the principal amount of Transfer Restricted Securities being sold to such underwriter(s), the purchase price being paid for Transfer Restricted Securities and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be -------- ------- required to take any action pursuant to this Section 6(c)(vii) that would, in the opinion of counsel for the Company, violate applicable law; (viii) furnish to each underwriter, if any, the Initial Purchasers and, upon request to the Company, to a selling 13 Holder without charge, at least one conformed copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including, upon the request of such Person, all documents incorporated by reference therein and all exhibits to the extent requested (including exhibits incorporated therein by reference); (ix) deliver to each selling Holder, each of the underwriter(s), if any, and the Initial Purchasers, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company hereby consents to the use of the Prospectus and any amendment or supplement to the Prospectus by each of the selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities in accordance with the terms hereof and thereof and with U.S. Federal securities laws and Blue Sky laws covered by the Prospectus or any amendment or supplement thereto; (x) enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings of securities of this type) and take all such other reasonable actions in con- nection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any Registration Statement contemplated by this Agreement, all as may be reasonably requested by any Holder of Transfer Restricted Securities or the underwriter(s), if any, in connection with any sale or resale of Transfer Restricted Securities pursuant to any Registration Statement contemplated by this Agreement; and whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, the Company shall (i) make such representations and warranties to the Holders of such Transfer Restricted Securities and the underwriters, if any, with respect to the business of the Company and its Subsidiaries (including with respect to businesses or assets acquired or to be acquired by any of them), and the Shelf Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when customarily requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the underwriters, if any, and special counsel to the Holders of the Transfer Restricted Securities being sold), addressed to each selling Holder of Transfer Restricted Securities and each of the underwriters, if any, covering the matters customarily covered in opinions 14 requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters, if any, and special counsel to Holders of Transfer Restricted Securities; (iii) use its best efforts to obtain customary "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company or any such subsidiary for which financial statements and financial data is, or is required to be, included in the Registration Statement), addressed (where reasonably possible) to each selling Holder of Transfer Restricted Securities and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the selling Holders and the underwriters, if any, than those set forth in Section 8 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Transfer Restricted Securities covered by such Shelf Registration Statement and the underwriters, if any); and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold and the underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. If at any time the representations and warranties of the Company contemplated in clause (X)(i) above cease to be true and correct, the Company shall so advise the Initial Purchasers and the underwriter(s), if any, and each selling Holder promptly and, if requested by any of them, shall confirm such advice in writing; (xi) prior to any public offering of Transfer Re stricted Securities, cooperate with the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification (or exemption from such registration or qualification) of the Transfer Restricted Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as the selling Holders and underwriter(s), if any, may reasonably request in writing and take reasonable steps necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Registration Statement; provided, however, that the Company shall not be required to register or -------- ------- qualify as a foreign 15 corporation where it is not now so qualified or to take any action that would subject it to the service of process or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xii) if a Shelf Registration is filed pursuant to Section 2(b), cooperate with the selling Holders of Registrable Securities and the managing Underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the managing Underwriters, if any, or Holders may reasonably request; (xiii) in connection with any sale or transfer of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the underwriter(s), if any, may request at least two business days prior to any sale of Transfer Restricted Securities made by such underwriter(s); (xiv) use its best efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers of such Transfer Restricted Securities or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xi) above; (xv) if any fact or event contemplated by Section 6(c)(iii)(D) of this Agreement shall exist or have occurred, prepare a supplement or post- effective amendment to the Registration Statement or related Prospectus or any document incorporated in such Registration Statement or Prospectus by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Registration Statement will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading and the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to 16 make the statements contained therein, in the light of the circumstances under which they were made, not misleading; (xvi) provide a CUSIP number for all New Notes not later than the effective date of the Registration Statement and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities that are in a form eligible for deposit with The Depository Trust Company; (xvii) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); (xviii) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission in regards to any Registration Statement, and make generally available to its securityholders, as soon as practicable, a consolidated earning statement of the Company meeting the requirements of Rule 158 (which need not be audited) for the twelve-month period (A) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm commitment or reasonable best efforts Underwritten Offering or (B) if not sold to underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement; (xix) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indenture, if any, as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause the Trustee to execute, all customary documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) of this Agreement, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xv) of this Agreement, or until it is advised in writing (the "Advice") by ------ 17 the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice. In the event that the Company shall give any such notice, the time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 of this Agreement, as applicable, shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(c)(iii)(D) of this Agreement to and including the date when each selling Holder covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xv) of this Agreement or shall have received the Advice. SECTION 7. REGISTRATION EXPENSES (a) All fees and expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made with the NASD (and, if applicable, the fees and expenses of any "qualified independent underwriter" and its counsel that may be required by the rules and regulations of the NASD)); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the New Notes to be issued in the Exchange Offer and printing of Prospectuses); (iv) all fees and disbursements of counsel for the Company and, subject to Section 7(b) below, the Holders of Transfer Restricted Securities; and (v) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by them. Notwithstanding the foregoing or anything in this Agreement to the contrary, each Holder of Transfer Restricted Notes shall pay all underwriting discounts and commissions of any underwriters with respect to any Notes sold by or on behalf of it. 18 (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities being tendered in the Exchange Offer and/or resold pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be O'Melveny & Myers LLP or such other counsel as may be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless (i) the Initial Purchasers, each Holder of Transfer Restricted Securities and each Participating Broker Dealer, (ii) each person, if any, who controls any of the foregoing within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person") and (iii) its agents, employees, officers and ------------------ directors and the agents, employees, officers and directors of any such controlling person (collectively, the "Indemnified Persons") from and against ------------------- any and all losses, liabilities, claims, damages and expenses whatsoever (including but not limited to reasonable attorneys' fees and any and all reasonable expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all reasonable amounts paid in settlement of any claim or litigation) to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company will not be liable in -------- ------- any such case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Indemnified Person relating to such Indemnified Person expressly for use therein. This indemnity agreement will be in addition to any liability that the Company may otherwise have, including, but 19 not limited to, liability under this Agreement. If any action is brought against any Indemnified Persons or any such person in respect of which indemnity may be sought against the Company pursuant to the foregoing paragraph, such Indemnified Persons or such person shall promptly notify the indemnifying party in writing of the institution of such action and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses, provided, however, except to the extent that the indemnifying party shall be materially prejudiced thereby (through the forfeiture of substantive rights or defenses), that the omission to so notify the indemnifying party shall not relieve the indemnifying party from any liability which they may have to the Indemnified Persons or any such person or otherwise. Such Indemnified Persons shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnified Persons unless the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action or the indemnifying party shall not have employed counsel to have charge of the defense of such action or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying party and paid as incurred (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with appropriate local counsel) in any one action or series of related actions in the same jurisdiction representing the indemnified parties who are parties to such action). The indemnifying party shall not be liable for any settlement of any such claim or action effected without its written consent but if settled with the written consent of the indemnifying party, the indemnifying party agrees to indemnify and hold harmless any Indemnified Persons and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days' 20 prior notice of its intention to settle and the proposed terms thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (b) In connection with any Registration Statement or Prospectus pursuant to which a Holder of Transfer Restricted Securities offers or sells Transfer Restricted Securities, such Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors and officers and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each of its agents, employees, officers and directors and the agents, employees, officers and directors of such controlling person from and against any losses, liabilities, claims, damages and expenses whatsoever (including but not limited to reasonable attorneys' fees and any and all reasonable expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever and any and all reasonable amounts paid in settlement of any claim or litigation) to which they or either of them may become subject under the Act, the Exchange Act or otherwise insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information relating to such Holder furnished to the Company by such Holder expressly for use in such Registration Statement or Prospectus. If any action is brought against the Company or any such person in respect of which indemnity may be sought against any Holder of Transfer Restricted Securities pursuant to foregoing paragraph, the Company or such person shall promptly notify such Holder in writing of the institution of such action and such Holder shall assume the defense of such action, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses, provided, however, except to the extent that the indemnifying party shall be materially prejudiced thereby (through the 21 forfeiture of substantive rights or defenses), that the omission to so notify such Holder shall not relieve such Holder from any liability which they may have to the Company or any such person or otherwise. The Company or such person shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Company or such person unless the employment of such counsel shall have been authorized in writing by such Holder of Transfer Restricted Securities in connection with the defense of such action or such Holder shall not have employed counsel to have charge of the defense of such action or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to such Holder (in which case such Holder shall not have the right to direct the defense of such action on behalf of the indemnified party or parties, but such Holder may employ counsel and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such Holder), in any of which events such fees and expenses shall be borne by such Holder and paid as incurred (it being understood, however, that such Holder shall not be liable for the expenses of more than one separate counsel in any one action or series of related actions in the same jurisdiction representing the indemnified parties who are parties to such action). Anything in this paragraph to the contrary notwithstanding, any Holder of Transfer Restricted Securities shall not be liable for any settlement of any such claim or action effected without the written consent of such Holder but if settled with the written consent of such Holder, such Holder agrees to indemnify and hold harmless the Company and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnifying party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days' prior notice of its intention to settle and the proposed terms thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. 22 (c) In order to provide for contribution in circumstances in which the indemnification provided for in paragraphs (a) and (b) of this Section 8 is for any reason held to be unavailable from the indemnifying party, or is insufficient to hold harmless a party indemnified under this Section 8, the Company and the Indemnified Parties shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action or any claims asserted) to which the Company and the Indemnified Parties may be subject, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Indemnified Parties, on the other hand, from the offering of the Old Notes or, (ii) if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Indemnified Parties, on the other hand, in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Indemnified Parties, on the other hand, shall be deemed to be in the same proportion as the total proceeds from the offering of Old Notes (net of discounts but before deducting expenses) received by the Company as set forth in the table on the cover page of the Offering Memorandum bear to the total proceeds received by such Holder with respect to its sale of Transfer Restricted Securities or New Notes. The relative fault of the Company, on the one hand, and the Indemnified Parties, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Indemnified Parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this paragraph (c) of this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to above. Notwithstanding the provisions of paragraph (c) of this Section 8, (i) in no case shall an Indemnified Party be required to contribute any amount in excess of the amount by which the total received by such Indemnified Party with respect to its sale of its Transfer Restricted Securities or New Notes, as the case may be, exceeds the amount of any damages that such Indemnified Party has otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission and (ii) no person guilty of fraudulent misrepresentation (within the 23 meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (c) of this Section 8, each person, if any, who controls an Indemnified Party within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Indemnified Party, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of this paragraph. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph 8(c), notify such party or parties from whom contribution may be sought, but, except to the extent that the indemnifying party shall be materially prejudiced thereby (through the forfeiture of substantive rights and defenses), the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this paragraph (c) or otherwise. No party shall be liable for contribution with respect to any action or claim settled without its written consent; provided, however, that such written consent was not unreasonably -------- ------- withheld. SECTION 9. RULE 144A The Company shall use its best efforts, for so long as any Transfer Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale of such securities and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. Notwithstanding the foregoing, nothing in this Section 9 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS No Holder may participate in any Underwritten Registration under this Agreement unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled under this Agreement to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorneys, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. 24 SECTION 11. SELECTION OF UNDERWRITERS The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering; provided, that such investment bankers and managers must be -------- reasonably satisfactory to the Company. SECTION 12. MISCELLANEOUS (a) Remedies. Each Holder, in addition to being entitled to exercise -------- all rights provided in this Agreement, in the Indenture, the Purchase Agreement or granted by law, including recovery of liquidated or other damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agree to waive the defense in any Action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not on or after the -------------------------- date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions of this Agreement. The Company has not previously entered into any agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders under this Agreement do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date of this Agreement. (c) Adjustments Affecting the Notes. Without the written consent of ------------------------------- the Holders of a majority in aggregate principal amount of outstanding Transfer Restricted Notes, the Company will not take any action, or permit any change to occur, with respect to the Notes that would materially and adversely affect the ability of the Holders to Consummate any Exchange Offer. (d) Amendments and Waivers. The provisions of this Agreement may not ---------------------- be amended, modified or supplemented, and waivers or consents to or departures from the provisions of this Agreement may not be given unless the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions of this Agreement that relates exclusively to the 25 rights of Holders whose securities are being sold or tendered pursuant to a Registration Statement and that does not affect directly or indirectly the rights of other Holders whose securities are not being sold or tendered pursuant to such Registration Statement may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities being so sold or tendered. (e) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivering, first-class mail (registered or certified, return receipt requested), telex, telecopier or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company, at: Standard Pacific Corp. 1565 West MacArthur Boulevard Costa Mesa, California 92626 Attention: Chief Financial Officer All such notices and communications shall be deemed to have been duly given: (i) at the time delivered by hand, if personally delivered; (ii) five business days after being deposited in the mail, postage prepaid, if mailed; (iii) when answered back, if telexed; (iv) when receipt acknowledged, if telecopied; and (v) on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit ---------------------- of and be binding upon the successors and permitted assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities. (g) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties to this Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Captions. The captions included in this Agreement are included -------- solely for convenience of reference and are not to be considered a part of this Agreement. 26 (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Submission to Jurisdiction. The Company irrevocably submits to -------------------------- the nonexclusive jurisdiction of any State or Federal court sitting in New York over any suit, action or proceeding arising out of or relating to this agreement. The Company irrevocably waives, to the fullest extent permitted by law, any objection it may now or thereafter have to the laying of venue of any such court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. The Company agrees that a final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon the Company and may be enforced in any other courts to the jurisdiction of which the Company is or may be subject, by suit upon such judgment. (k) Severability. In the event that any one or more of the provisions ------------ contained in this Agreement, or the application of any such provision in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained in this Agreement shall not be affected or impaired thereby. (l) Entire Agreement. This Agreement together with the other ---------------- Operative Documents (as defined in the Purchase Agreement) is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties to this Agreement in respect of the subject matter contained in this Agreement. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to in this Agreement with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. [Signatures on Next Page] 27 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. STANDARD PACIFIC CORP. By: _________________________ Name: Title: SBC WARBURG DILLON READ INC. By: _________________________ Name: Title: By: _________________________ Name: Title: BANCAMERICA ROBERTSON STEPHENS By: _________________________ Name: Title: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: _________________________ Name: Title: 28 EX-10.10 4 SHARE PURCHASE AGREEMENT DATED 11/7/1997 EXHIBIT 10.10 SHARE PURCHASE AGREEMENT BETWEEN STANDARD PACIFIC CORP. AND HON INDUSTRIES, INC. REGARDING PANEL CONCEPTS, INC. Dated as of November 7, 1997 TABLE OF CONTENTS
Page ARTICLE 1 TERMS OF THE TRANSACTION.......................................... 1 1.1 Purchase and Sale of Shares....................................... 1 1.2 Purchase Price.................................................... 1 1.3 Payment of Purchase Price......................................... 1 1.4 Closing Balance Sheet Adjustments................................. 2 (a) Preparation of Closing Balance Sheet......................... 2 (b) Review of Adjustment Statement............................... 2 (c) Adjusted Book Value.......................................... 2 (d) Purchase Price Adjustment.................................... 3 1.5 Adjustment for Uncollected Receivables............................ 4 1.6 Sale or Distribution of Certain Property.......................... 5 1.7 Adjustment for Physical Inventory................................. 6 ARTICLE 2 CLOSING.......................................................... 6 2.1 Time and Place.................................................... 6 2.2 Deliveries by Standard Pacific.................................... 6 2.3 Deliveries by HON................................................. 7 2.4 Other Closing Documents........................................... 8 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF STANDARD PACIFIC................ 8 3.1 Organization; Power and Authority................................. 8 3.2 Authorization, Execution and Validity of Agreement................ 8 3.3 Subsidiaries, Affiliates, Joint Ventures and Investments....................................................... 9 3.4 Capitalization.................................................... 9 3.5 Title to Shares................................................... 9 3.6 Organizational Records............................................ 9 3.7 Consents and Approvals; No Violation.............................. 9 3.8 Financial Information............................................. 10 (a) Financial Statements......................................... 10 (b) Absence of Undisclosed Liabilities........................... 11 3.9 Absence of Certain Changes........................................ 11 3.10 Payables.......................................................... 11 3.11 Real Property..................................................... 12 3.12 Personal Property................................................. 12 3.13 Condition of Assets............................................... 12 3.14 Contracts......................................................... 13 3.15 Litigation........................................................ 14 3.16 Permits........................................................... 15 3.17 Environmental Matters............................................. 15 3.18 Regulatory Compliance............................................. 17 3.19 Customers and Suppliers........................................... 17 3.20 Intellectual Property............................................. 18 3.21 Employees......................................................... 18 3.22 Employee Benefits................................................. 19 3.23 Taxes............................................................. 21 3.24 Brokers........................................................... 23 3.25 Product Warranties and Returns; Warranty Costs.................... 23 3.26 Insurance......................................................... 24 3.27 Absence of Certain Commercial Practices........................... 24 3.28 Banking and Agency Arrangements................................... 24 3.29 Affiliated Transactions; Certain Advances; Insider Interests................................................. 25 3.30 Backlog........................................................... 25 3.31 Pre-closing Transfer Transactions................................. 25 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF HON............................. 25 4.1 Organization; Power and Authority................................. 25 4.2 Authorization, Execution and Validity............................. 25 4.3 No Conflict; HON Consents......................................... 26 4.4 Brokers........................................................... 26 4.5 Purchase for Investment........................................... 26 4.6 Investigation..................................................... 26
Page ---- 4.7 Financing......................................................... 26 4.8 Legal Proceedings................................................. 26 ARTICLE 5 COVENANTS......................................................... 26 5.1 Pre-closing Access to Information................................. 26 5.2 Conduct of Business............................................... 27 5.3 Insurance......................................................... 29 5.4 Consents and Approvals............................................ 29 5.5 Legal Proceedings; Injunctions.................................... 29 5.6 Acquisition Proposals............................................. 29 5.7 Notice............................................................ 30 5.8 Intercompany Indebtedness......................................... 30 5.9 Best Efforts; Cooperation......................................... 30 5.10 Contact with Customers and Suppliers.............................. 30 5.11 Plant Closing Obligations......................................... 30 5.12 Payment of Bonuses at Closing..................................... 30 ARTICLE 6 POST CLOSING COVENANTS............................................ 30 6.1 Limitation on Competition......................................... 30 (a) Period and Conduct........................................... 30 (b) Territory.................................................... 31 (c) Definition................................................... 31 (d) Remedies..................................................... 31 (e) Severability................................................. 31 6.2 Books and Records................................................. 32 6.3 Confidentiality................................................... 32 6.4 Employee Matters.................................................. 32 6.5 Trade Names....................................................... 33 6.6 Product Warranty.................................................. 34 6.7 Further Assurances................................................ 34 6.8 Cooperation in Third-Party Litigation............................. 34 6.9 Omnific Chair Inventory........................................... 34 ARTICLE 7 CONDITIONS PRECEDENT TO CLOSING................................... 35 7.1 Conditions Precedent to HON's Obligations......................... 35 (a) Accuracy of Representations and Warranties................... 35 (b) Litigation................................................... 35 (c) Covenants.................................................... 35 (d) Deliveries................................................... 35 (e) Consents..................................................... 35 (f) No Material Adverse Change................................... 35 7.2 Conditions Precedent to Standard Pacific's Obligations....................................................... 35 (a) Accuracy of Representations and Warranties................... 35 (b) Litigation................................................... 36 (c) Covenants.................................................... 36 (d) Deliveries................................................... 36 (e) Consents..................................................... 36 ARTICLE 8 CERTAIN TAX MATTERS............................................... 36 8.1 Tax Indemnification............................................... 36 8.2 Procedures Relating to Tax Indemnification........................ 37 8.3 Tax Dispute Resolution Mechanism.................................. 39 8.4 Survival of Tax Provisions........................................ 39 8.5 Conveyance Taxes.................................................. 39 8.6 Return Filings, Refunds and Credits............................... 39 8.7 Exclusivity....................................................... 40 8.8 Tax Sharing Agreements............................................ 40 8.9 Adjustment to Purchase Price...................................... 41 8.10 Carryforwards of Losses........................................... 41 8.11 Section 338(h)(10) Election....................................... 41 ARTICLE 9 TERMINATION PRIOR TO CLOSING DATE................................. 41
Page ---- 9.1 Termination...................................................... 41 9.2 Effect of Termination............................................ 42 ARTICLE 10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION...... 42 10.1 Survival of Representations and Warranties....................... 42 10.2 Indemnification by Standard Pacific.............................. 43 10.3 Indemnification by HON........................................... 44 10.4 Limits on Indemnification........................................ 44 10.5 Indemnification Procedures....................................... 45 (a) Notice....................................................... 45 (b) Third Party Claims........................................... 45 10.6 Indemnification for Taxes........................................ 46 10.7 Adjustment to Purchase Price..................................... 47 10.8 Subrogation...................................................... 47 10.9 Remedies Exclusive............................................... 47 ARTICLE 11 MISCELLANEOUS.................................................... 47 11.1 Severability..................................................... 47 11.2 Successors and Assigns........................................... 47 11.3 Counterparts..................................................... 48 11.4 Headings......................................................... 48 11.5 Waiver........................................................... 48 11.6 No Third-party Beneficiaries..................................... 48 11.7 Expenses......................................................... 48 11.8 Notices.......................................................... 48 11.9 Governing Law; Interpretation.................................... 49 11.10 Exclusive Jurisdiction and Consent to Service of Process........ 49 11.11 Entire Agreement; Amendment...................................... 49 11.12 Definitions...................................................... 50 11.13 Representations and Warranties................................... 50
EXHIBITS AND SCHEDULES Exhibit A Pre-Closing Balance Sheet Schedule 1.6 Sale or Distribution of Certain Property Schedule 2.4 Form of Transition Services Agreement Schedule 3.7 Consents and Approvals Schedule 3.8(a) Financial Statements Schedule 3.8(b) Other Liabilities Schedule 3.9 Certain Changes Schedule 3.11 Real Property Schedule 3.12 Personal Property Schedule 3.14 Contracts Schedule 3.15 Litigation Schedule 3.17 Environmental Matters Schedule 3.18 Compliance with Other Laws Schedule 3.19 Customers and Suppliers Schedule 3.20 Intellectual Property Schedule 3.22 Employee Benefits Schedule 3.23 Taxes Schedule 3.25 Product Warranties and Product Warranty Claims Schedule 3.26 Insurance Schedule 3.28 Banking and Agency Arrangements Schedule 3.29 Affiliated Transactions Schedule 6.4 Employee Matters Schedule 6.8 Third Party Litigation Schedule 7.1(e) Consents SHARE PURCHASE AGREEMENT THIS SHARE PURCHASE AGREEMENT ("Agreement") is made as of November 7, --------- 1997 by and between STANDARD PACIFIC CORP., a Delaware corporation ("Standard -------- Pacific"), and HON INDUSTRIES INC., an Iowa corporation ("HON"). - ------- --- R E C I T A L S: --------------- A. Standard Pacific owns all of the issued and outstanding Common Stock, $0.01 par value (the "Shares") of Panel Concepts, Inc., a Delaware ------ corporation ("Panel Concepts"), with its principal offices located in Santa Ana, -------------- California. B. Panel Concepts is in the business (the "Business") of designing, -------- manufacturing, supplying and selling office furniture systems, office partitions, office furniture (including seating), and office furniture components, including shelves, work surfaces and drawer pedestals (collectively, the "Products" ). -------- C. Standard Pacific desires to sell, and HON desires to purchase, the Shares pursuant to this Agreement. NOW, THEREFORE, HON and Standard Pacific, intending to be legally bound, hereby agree as follows: ARTICLE 1 TERMS OF THE TRANSACTION ------------------------ 1.1 Purchase and Sale of Shares. On the terms and subject to the --------------------------- conditions of this Agreement, on the Closing Date (as hereinafter defined), Standard Pacific shall sell, transfer and assign to HON, and HON shall purchase and acquire from Standard Pacific, all of the Shares, free and clear of all claims, liens, charges, assessments, security interests, pledges, restrictions and other encumbrances of any nature whatsoever (collectively, "Liens"). ----- 1.2 Purchase Price. The purchase price (the "Purchase Price") for the -------------- -------------- Shares shall be the Adjusted Book Value (as hereinafter defined) of Panel Concepts as of the Closing Date, plus $6,000,000. 1.3 Payment of Purchase Price. At the Closing (as defined in (Section ------------------------- ------- 2.1) of the transactions contemplated hereby, HON shall wire transfer the amount of $8,378,856 (the "Closing Date Payment Amount"), which is equal to the sum of (i) the Adjusted Bo ok Value (as hereinafter defined) of Panel Concepts as of September 30, 1997 (the "Target Book Value Amount") as agreed to by the parties ------------------------- and set forth in the balance sheet attached hereto as Exhibit A (the "Pre- --------- --- Closing Balance Sheet"), plus (ii) $6,000,000, minus (iii) $500,000 (the - --------------------- "Holdback Amount"), in immediately available funds to such bank account --------------- designated by Standard Pacific in writing at least one business day prior to the Closing. 1.4 Closing Balance Sheet Adjustments. --------------------------------- (a) Preparation of Closing Balance Sheet. As soon as reasonably ------------------------------------ practicable, but not later than 30 days after the Closing Date, Standard Pacific, with the assistance and cooperation of the personnel of Panel Concepts (who, for these purposes, will be under the direction and supervision of Standard Pacific), will prepare and deliver to HON (i) a balance sheet (the "Closing Balance Sheet") of Panel Concepts as of the close of business on the - ---------------------- Closing Date and (ii) a calculation of Adjusted Book Value as of the Closing Date (the "Adjustment Statement"). Except as otherwise provided in this Section -------------------- ------- 1.4, the Closing Balance Sheet shall be prepared and Adjusted Book Value shall - --- be calculated in accordance with generally accepted accounting principles as in effect on the date of this Agreement ("GAAP"), applied on a basis consistent ---- with the preparation of the Pre-Closing Balance Sheet. After the Closing Date, for the purpose of preparing the Closing Balance Sheet, Standard Pacific and its employees, accountants and representatives shall have full access, at all reasonable times and in a manner not disruptive to the ongoing operation of Panel Concepts, to the books, records and properties of Panel Concepts reasonably necessary for the preparation of the Closing Balance Sheet, and all personnel of Panel Concepts reasonably requested by Standard Pacific. (b) Review of Adjustment Statement. HON shall have 30 days in which to review the Closing Balance Sheet and the Adjustment Statement. For such purpose, Standard Pacific shall afford HON and HON's agents and representatives reasonable access to all work papers used by Standard Pacific to prepare the Closing Balance Sheet and the Adjustment Statement. Within 30 days after receipt of the Closing Balance Sheet, HON shall either inform Standard Pacific in writing that the Adjusted Book Value is acceptable or object to the Adjustment Statement in writing setting forth a description of its objections. If HON so objects and HON and Standard Pacific do not resolve such objections on a mutually agreeable basis within 90 days after Standard Pacific's receipt thereof, the disagreement shall be resolved within an additional 60 day period by an independent accounting firm of national reputation jointly selected by HON and Standard Pacific (the "Independent Firm"). The decision of the Independent Firm shall be final and binding upon HON and Standard Pacific. Upon the agreement of HON and Standard Pacific or the decision of the Independent ----------- Firm, or if HON fails to deliver an objection to Standard Pacific within the 30 - ---- day period provided above, the Closing Balance Sheet (as adjusted, if necessary) and the determination of Adjusted Book Value shall be deemed the final and conclusive. HON and Standard Pacific shall bear the fees, costs and expenses of their own accountants and shall share equally the fees, costs and expenses of the Independent Firm. (c) Adjusted Book Value. The term "Adjusted Book Value" shall mean ------------------- ------------------- the net book value of Panel Concepts, as set forth on the Closing Balance Sheet, and adjusted as follows: i) Cash, all obligations owing from Standard Pacific or any of its Affiliates (as hereinafter defined) to Panel Concepts (which shall be repaid or canceled pursuant to Section 5.8), all obligations, if any, ----------- owing from Panel Concepts to Standard Pacific or any Affiliate of Standard Pacific (which will be canceled pursuant to Section 5.8), ----------- current and deferred tax accounts and Pre-closing Sale Property (as defined in Section 1.6 and related shut-down reserves), shall not be ----------- included (in the calculation or as assets or liabilities of Panel Concepts at the time of Closing, and Panel Concepts will be entitled to dividend or otherwise transfer such assets to itself or to any third party designee for no consideration prior to the Closing). ii) Any prepaid advertising or North Carolina taxes, tooling and production equipment not usable in production of current or new Products shall be valued at zero. iii) Usable inventory stocked in excess of 270 days of either past or forecasted usage shall be valued at zero. Usable inventory stocked in excess of 90 days of either past or forecasted usage shall be discounted 33% of cost and usable inventory stocked in excess of 180 days of either past or forecasted usage shall be discounted an additional 33% of cost. Inventory associated with the "Omnific Chair" line of Products (the "Omnific Chair Inventory") shall be excluded ----------------------- from the valuation of Panel Concepts' inventory. iv) The liabilities for which HON would be indemnified by Standard Pacific as set forth in Sections 8.1 and 10.2 shall be excluded. ------------ ---- v) Any allowance for doubtful Accounts Receivable would be excluded from the valuation of Panel Concepts' Accounts Receivable. (d) Purchase Price Adjustment. ------------------------- i) If the Adjusted Book Value as of the Closing exceeds the Target Book Value Amount, then HON shall pay Standard Pacific (A) 100% of the Holdback Amount, plus (B) the amount by which the Adjusted Book Value exceeds the Target Book Value Amount. ii) If the Adjusted Book Value as of the Closing equals the Target Book Value Amount, HON shall pay Standard Pacific 100% of the Holdback Amount. iii) If the Adjusted Book Value as of the Closing is less than the Target Book Value Amount by an amount (the "X Shortfall Amount") equal to or ------------------ less than the Holdback Amount, (A) HON shall pay to Standard Pacific an amount (the "Net Holdback Amount") equal to the Holdback Amount ------------------- less the X Shortfall Amount, and (B) HON shall be entitled to retain the X Shortfall Amount. iv) If the Adjusted Book Value as of the Closing is less than the Target Book Value Amount by an amount (the "Y Shortfall Amount") greater than ------------------ the Holdback Amount, (A) Standard Pacific shall pay to HON the Y Shortfall Amount less the Holdback Amount, and (B) HON shall be entitled to retain 100% of the Holdback Amount. v) All amounts payable pursuant to this Section 1.4 shall be paid on the ----------- first business day following the final determination of Adjusted Book Value pursuant to Section 1.4(b) by wire transfer of immediately ------------- available funds to such bank account designated by the recipient in writing. 1.5 Adjustment for Uncollected Receivables. (a) If Standard Pacific -------------------------------------- or any of its Affiliates receives any payment relating to any Accounts Receivable outstanding on or after the Closing Date (other than Accounts Receivable transferred to Standard Pacific pursuant to Section 1.5(d)), such ------------- payment shall be the property of, and shall be immediately forwarded and remitted to, Panel Concepts. Standard Pacific or such Affiliate will promptly endorse and deliver to Panel Concepts any cash, checks or other documents received by Standard Pacific on account of any such Accounts Receivable. Standard Pacific or such Affiliate shall advise Panel Concepts (promptly following Standard Pacific's becoming aware thereof) of any counterclaims or set-offs that may arise subsequent to the Closing Date with respect to any Accounts Receivable. (b) After the Closing Date, HON shall and shall cause Panel Concepts to use commercially reasonable efforts consistent with prior ordinary course business practi ces of Panel Concepts, to collect all Accounts Receivable; provided, however, that neither HON nor Panel Concepts shall be - -------- ------- obligated to continue to do business with any Person (as hereinafter defined) if HON believes such continuation will not be in its best interests, and shall not be obligated to initiate litigation or to turn any of such Accounts Receivable over to a collection agency or attorney. (c) HON shall deliver a true and correct list of the Accounts Receivable aging within fifteen (15) business days following the end of each month and the expiration of each period during which such Accounts Receivable are deemed "uncollectible" in accordance with this Section 1.5. Accounts ----------- Receivable shall be deemed "uncollectible" if remaining unpaid 120 days after the Closing Date, except in the case of Accounts Receivable relating to Panel Concepts' contract with the General Services Administration, which shall be deemed uncollectible if remaining unpaid 180 days after the Closing Date. (d) Within ten (10) business days after Standard Pacific's receipt of each Accounts Receivable aging report setting forth the Accounts Receivable deemed uncollectible pursuant to Section 1.5(c), Standard Pacific shall purchase -------------- (without recourse to Panel Concepts) such uncollectible Accounts Receivable then remaining unpaid for a purchase price equal to the face amount thereof. Upon Standard Pacific c's repurchase of any unpaid Account Receivable pursuant to this Section 1.5(d), (i) HON shall and shall cause Panel Concepts to promptly ------------- deliver to Standard Pacific any tangible evidence of such Account R eceivable then in the possession of HON or Panel Concepts or under their control, and (ii) Standard Pacific shall be entitled to take any and all actions which it may deem necessary or desirable in order to collect such unpaid Account Receivable. HON shall and shall cause Panel Concepts to, from time to time after such repurchase, execute and deliver to Standard Pacific such instruments and other documents as Standard Pacific may reasonably request to assist Standard Pacific in its collection effort. In the event that any payment received by HON or Panel Concepts is remitted by a customer which is indebted under both Accounts Receivable and an account receivable arising out of the sale of inventory in the ordinary course of Business after the Closing Date (a "New Receivable") such -------------- payments shall first be applied to the Accounts Receivable due from such customer and the balance remaining after payment in full of all Accounts Receivable due from such customer shall be applied to the New Receivable; provided, however, that (i) with respect to any Account Receivable being - -------- ------- contested or disputed by the payor thereof no portion of the amount in dispute shall be deemed to have been collected by HON or Panel Concepts in respect of the Account Receivable due from such customer (unless otherwise directed by the customer) until all amounts owned by such customer to Panel Concepts for New Receivables have been paid or such dispute has been resolved, whichever occurs first (it being understood that undisputed amounts of Accounts Receivable shall be applied in accordance with the priorities set forth above in this Section ------- 1.5(d)) and (ii) the foregoing priorities shall not apply to sums received by - ------ HON or Panel Concepts which are specifically identified by the customer as being tendered in payment of a New Receivable. HON agrees not to and to cause Panel Concepts not to induce any customer to identify any payment as being in respect of a New Receivable, except in the event Panel Concepts reasonably determines to sell to said customer on a C.O.D. basis only. HON will and will cause Panel Concepts to cooperate, at Standard Pacific's expense, with Standard Pacific in collecting any Accounts Receivable which are purchased by Standard Pacific pursuant to this Section 1.5(d). -------------- (e) Any sums received by HON or Panel Concepts in respect of Accounts Receivable after their purchase by Standard Pacific pursuant to Section 1.5(d) -------------- hereof, shall be promptly transmitted by HON or Panel Concepts, as the case may be, to Standard Pacific. HON hereby grants and shall cause Panel Concepts to grant to Standard Pacific a power of attorney to endorse and cash any checks of instruments made payable or endorsed to HON or Panel Concepts received by Standard Pacific with respect to the Accounts Receivable which are purchased by Standard Pacific pursuant to Section 1.5(d). -------------- (f) The term "Accounts Receivable" shall mean all accounts ------------------ receivable relating to sales made prior to Closing, including deferred receivable, of Panel Concepts (including royalties receivable), any payments received with respect thereto after the Closing Date, unpaid interest accrued on any such accounts receivable and any security or collateral relating thereto. 1.6 Sale or Distribution of Certain Property. Prior to the Closing ---------------------------------------- Date and as a condition precedent to the Closing hereunder, Standard Pacific shall cause Panel Concepts to transfer, for no consideration or such consideration as Standard Pacific may determine in its sole discretion, certain property identified on Schedule 1.6 ("Pre-closing Sale Property"), including ------------ ------------------------- Panel Concepts' interest in its plant and equipment located at Greensboro, North Carolina ("NC Property"), the Omnific Chair Inventory and the "Omnific" trade ----------- name and any related commercial symbols to a third party purchaser or to Standard Pacific or an Affiliate of Standard Pacific (each a "Transferee"). ---------- Panel Concepts shall distribute by dividend or otherwise any proceeds of such transactions to Standard Pacific or its designee prior to the Closing. The transactions described in this Section 1.6 are referred to in this Agreement ----------- collectively as the "Pre-closing Transfer Transactions". --------------------------------- 1.7 Adjustment for Physical Inventory. On December 6 and 7, 1997, HON --------------------------------- will perform and complete a physical inventory (the "Physical Inventory") of ------------------ Panel Concepts' inventory to determine Panel Concepts' inventory as of the Closing Date; provided, that, if the Closing does not occur on December 1, 1997, then the Physical Inventory shall be performed on such other day or days shortly following the Closing as the parties shall mutually agree. Standard Pacific and its employees, accountants and representatives shall, to the extent requested by Standard Pacific, be permitted to attend and observe all aspects of the Physical Inventory. In the event the Physical Inventory would result in an adjustment of less than plus or minus 5% of the value of Panel Concepts' inventory as set forth in the Closing Balance Sheet prepared by Standard Pacific pursuant to Section 1.4(a), then no adjustment shall be made to the value of the inventory - -------------- as set forth in such Closing Balance Sheet. In the event that the Physical Inventory would result in an adjustment of more than plus or minus 5% in the value of Panel Concepts' inventory as set forth in such Closing Balance sheet, then, the value of the inventory on the Closing Balance Sheet shall be adjusted, but only to the extent of the portion of the adjustment exceeding the 5% threshold. ARTICLE 2 CLOSING ------- 2.1 Time and Place. Except as otherwise mutually agreed upon by -------------- Standard Pacific and HON, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Gibson, Dunn & ------- Crutcher in Irvine, California at 10:00 a.m., on December 1, 1997, or at such other time and place as the parties shall agree upon in writing (the "Closing ------- Date"). The Closing shall be deemed effective at 12:01 a.m. Pacific Daylight - ---- Time on the Closing Date. 2.2 Deliveries by Standard Pacific. At the Closing, Standard Pacific ------------------------------ shall deliver the following to HON: (a) Certificates representing all of the Shares, together with duly executed stock transfer powers endorsed in blank or accompanied by duly executed instruments of transfer. (b) A receipt duly executed by Standard Pacific acknowledging receipt of the Closing Date Payment Amount. (c) Copies of all documents related to the Pre-closing Transfer Transactions, including, without limitation, all transfer and assignment agreements (collectively, the "Pre-closing Transfer Agreements"). ------------------------------- (d) Recent good standing certificate for Panel Concepts issued by the Secretary of State of the State of Delaware. (e) Recent good standing certificate for Panel Concepts issued by the Secretary of State of the State of California. (f) Copies of (A) the resolutions of the Board of Directors of Standard Pacific authorizing and approving the transfer of Shares, (B) Panel Concepts' Articles of Incorporation and (C) Panel Concepts' By-laws, each certified by an officer of Standard Pacific and Panel Concepts to be true, correct, complete and in full force and effect and unmodified as of the Closing Date. (g) The resignations of the members of the Board of Directors and prior to the Closing, officers of Panel Concepts. (h) A certificate signed by an authorized officer of Standard Pacific and dated the Closing Date certifying that (i) each of the representations and warranties made by Standard Pacific in this Agreement is true and correct as of the Closing Date in all material respects and (ii) all of the terms, covenants and conditions of this Agreement to be complied with and performed by Standard Pacific on or before the Closing Date have been complied with and performed in all material respects. (i) Evidence of all consents, novations, approvals, authorizations, requirements (including filing and registration requirements), waivers and agreements ("Consents") from all Governmental Authorities (as hereinafter -------- defined) and any Persons necessary to authorize, approve or permit the execution, delivery and performance by Standard Pacific of this Agreement or the consummation of the transactions contemplated hereby to the extent obtained by Standard Pacific or Panel Concepts on or prior to the Closing Date pursuant to Section 7.1(e). - -------------- (j) A certificate signed by an authorized officer of Standard Pacific under Section 1445(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and regulations thereunder, in a form reasonably ---- acceptable to HON, setting forth Standard Pacific's taxpayer identification number and stating that Standard Pacific is not a foreign person within the meaning of Section 1445(f)(3) of the Code. (k) Such other documents, instruments and certificates as HON may reasonably request in connection with the transactions contemplated by this Agreement. 2.3 Deliveries by HON. At the Closing, HON shall deliver the ----------------- following to Standard Pacific: (a) The Closing Date Payment Amount. (b) A cross-receipt duly executed by HON acknowledging receipt of the Shares. (c) A copy of the resolutions of the Board of Directors of HON authorizing and approving this Agreement and all other transactions and agreements contemplated hereby, certified by the Secretary or an Assistant Secretary of HON to be true, correct, complete and in full force and effect and unmodified as of the Closing Date. (d) A certificate signed by an authorized officer of HON and dated the Closing Date certifying that (i) each of the representations and warranties made by HON in this Agreement is true and correct as of the Closing Date in all material respects and (ii) all of the terms, covenants and conditions of this Agreement to be complied with and performed by HON on or before the Closing Date have been complied with and performed in all material respects. (e) Evidence of all Consents from all Governmental Authorities and any Persons necessary to authorize, approve or permit the execution, delivery and performance by HON of this Agreement or the consummation of the transactions contemplated hereby to the extent obtained by HON on or prior to the Closing Date pursuant to Section 7.2(e). -------------- (f) Such other documents, instruments and certificates as Standard Pacific may reasonably request for the transactions contemplated by this Agreement. 2.4 Other Closing Documents. At the Closing, Standard Pacific, Panel ----------------------- Concepts and HON shall execute and deliver a transition services agreement, substantially in the form attached hereto as Schedule 2.4, concerning the provision of employee benefits following the Closing Date. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF STANDARD PACIFIC -------------------------------------------------- Standard Pacific makes the following representations and warranties to HON: 3.1 Organization; Power and Authority. Each of Standard Pacific and --------------------------------- Panel Concepts is a corporation duly organized, validly existing and in good standing under the laws of its State of Incorporation and each has the requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted. Panel Concepts is duly qualified or licensed to do business as a foreign corporation and is in good standing in the State of California and in each other jurisdiction in which the ownership of its assets and properties or the conduct of its Business requires such qualification, except where the failure so to qualify would not have a material adverse effect on the Business or the assets, results of operations or financial condition of Panel Concepts (a "Material Adverse Effect"). 3.2 Authorization, Execution and Validity of Agreement. Standard -------------------------------------------------- Pacific has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Standard Pacific of this Agreement and the consummation by Standard Pacific of the transactions contemplated hereby have been duly authorized by the Board of Directors of Standard Pacific, and no other corporate action on the part of Standard Pacific is necessary to authorize this Agreement or for Standard Pacific to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Standard Pacific, and, assuming the due authorization, execution and delivery by HON, constitutes a legal, valid and binding obligation of Standard Pacific, enforceable against Standard Pacific in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors' rights generally. 3.3 Subsidiaries, Affiliates, Joint Ventures and Investments. Panel -------------------------------------------------------- Concepts has no direct or indirect ownership interest in, by way of stock ownership or otherwise, any corporation, association or business enterprise. Except as reflected in the Financial Statements (as hereinafter defined), Panel Concepts does not have any investments in any other firms, persons or corporations. 3.4 Capitalization. The authorized capital stock of Panel Concepts -------------- consists of 1000 shares of Common Stock, $0.01 par value, of which 10 are issued and outstanding. All of the Shares have been duly authorized and validly issued and are fully paid and non-assessable and free of any pre-emptive rights in respect thereto. There are no authorized or outstanding (i) options, warrants, subscriptions, calls, commitments, rights or other agreements of any character to purchase or otherwise acquire from Panel Concepts shares of capital stock of any class, (ii) securities of Panel Concepts that are convertible into, or exchangeable or exercisable for, shares of any class of capital stock of Panel Concepts, (iii) options, warrants or other rights to acquire from Panel Concepts any such convertible, exchangeable or exercisable securities, or (iv) any other contracts, commitments, agreements, understandings or arrangements of any kind relating, directly or indirectly, to the issuance by Panel Concepts of any shares of its capital stock. There are no voting trusts or other agreements or understandings to which Panel Concepts or Standard Pacific is a party with respect to the capital stock of Panel Concepts. 3.5 Title to Shares. Standard Pacific is the beneficial and record --------------- owner of all of the Shares, free and clear of all Liens. At the Closing, HON will acquire good and marketable title to the Shares, free and clear of all Liens. Such Shares are not subject to any restrictions on transferability other than those imposed by the Securities Act of 1933, as amended (the "1933 Act"), and applicable state securities laws. Other than this Agreement, there are no options, warrants, calls, commitments or rights of any character under which Standard Pacific may be obligated to sell or transfer any of the Shares. 3.6 Organizational Records. The books of account, minute books, stock ---------------------- record books, and other records of Panel Concepts, all of which have been made available to HON, are complete and correct and have been maintained in accordance with sound business practices. The minute books of Panel Concepts contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholders, the Boards of Directors, and committees of the Boards of Directors of Panel Concepts, and no meeting of any such stockholders, Board of Directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of such books and records will be in the possession of Panel Concepts. 3.7 Consents and Approvals; No Violation. ------------------------------------ (a) Except as set forth on Schedule 3.7, neither the execution, ------------ delivery and performance by Standard Pacific of this Agreement nor the consummation of the transactions contemplated hereby including, without limitation, the Pre-closing Transfer Transactions, will: (i) conflict with or violate any statute, law, rule, regulation, ordinance, order, judgment, award, writ, injunction or decree (collectively, "Laws") of any federal, state or local government or ---- political subdivision thereof, governmental or regulatory agency, authority, entity, commission, court or other instrumentality ("Governmental Authority"), except (a) to the extent that such conflict or ---------------------- violation would not have a Material Adverse Effect or (b) as would occur solely as a result of the identity or the legal or regulatory status of HON or any of its Affiliates. (ii) violate the Certificate of Incorporation or By-laws of Standard Pacific or the Certificate of Incorporation or By-laws of Panel Concepts, (iii) require any Consent of, or the registration, declaration or filing of any document or report with or notification to, any Governmental Authority, except (a) where the failure to obtain such Consent could not reasonably be expected to have a Material Adverse Effect and (b) as would be required solely as a result of the identity or the legal or regulatory status of HON or any of its Affiliates. (iv) violate or conflict with, result in a breach of or constitute (with or without due notice or the passage of time or both) a default under, or give rise to any right of termination, cancellation or acceleration of the performance of or the loss of a benefit under, any material Contract or material Permit (the terms Contract and Permit being hereinafter defined), to which Panel Concepts, Standard Pacific or any of its subsidiaries is a party to or to which Panel Concepts, Standard Pacific, any of its subsidiaries or any of their assets are subject, or (v) result in the creation of any Lien on any assets of Panel Concepts. 3.8 Financial Information. --------------------- (a) Financial Statements. Standard Pacific has previously furnished -------------------- to HON copies of the unaudited September 30, 1997 balance sheet and income statement of Panel Concepts and the audited consolidated balance sheet of Panel Concepts as of and for the years ended December 31, 1996, 1995, and 1994, and related consolidated statements of operations, consolidated statement of shareholders' equity and consolidated statements of cash flows, for the fiscal year then ended (together with notes thereto), certified by Arthur Andersen, L.L.P., Panel Concepts' independent public accountants, and accompanied by their reports thereon (collectively, the "Financial Statements"). The Financial -------------------- Statements fairly present in all material respects the financial condition, results of operations, and cash flows of Panel Concepts as of the dates and for the periods presented therein in accordance with GAAP applied on a consistent basis throughout the period indicated, except as otherwise noted therein or in the related notes thereto or as set forth on Schedule 3.8(a) of the Disclosure -------------- Schedule. (b) Absence of Undisclosed Liabilities. Panel Concepts has no debts, ---------------------------------- liabilities or obligations, including any liabilities arising out of any illegal or concealed conditions, whether absolute, accrued, contingent or otherwise, and whether known or unknown, including, without limitation, liabilities for Taxes (as hereinafter defined), except for those (i) set forth in or reserved against on the Financial Statements, (ii) liabilities incurred in the ordinary course of business since September 30, 1997, which are not in the aggregate material, and which are consistent with the representations, warranties, covenants, obligations and agreements contained in this Agreement, (iii) liabilities disclosed on Schedule 3.8(b), and (iv) liabilities reflected in the Closing --------------- Balance Sheet as finally determined. 3.9 Absence of Certain Changes. Except as disclosed on Schedule 3.9 -------------------------- ------------ and as contemplated by Sections 1.4(c)(i) and 1.6, since September 30, 1997 and ------------------ --- on or before the date of this Agreement, none of the following actions has occurred: (a) any material change in the assets, financial position, results of operations or business of Panel Concepts, (b) any damage, destruction or casualty loss (whether or not covered by insurance) to the owned or leased property or assets of Panel Concepts involving an amount in excess of $50,000, (c) any amendment or termination of any Contract, Lease or Permit of Panel Concepts, other than in the ordinary course of business, (d) any sale, lease, or other disposition of any properties or assets of Panel Concepts, other than assets sold, leased or otherwise disposed of in the ordinary course of business, (e) any increase in the compensation payable or benefits provided to any of the employees of Panel Concepts (the "Employees"), except for annual --------- increases in compensation of non-executive Employees consistent with past practices none of which exceeded 4%, or (f) any agreement or commitment to take any action described in this Section 3.9. ----------- 3.10 Payables. Panel Concepts has experienced or suffered no undue -------- delay in its payment of its liabilities and obligations to its trade creditors (including suppliers) or trade debt. 3.11 Real Property. ------------- (a) Schedule 3.11 contains a complete list and description of all of ------------- the real property owned by Panel Concepts (the "Real Property") and all of the ------------- leases (the "Leases") of real property (the "Leased Property") to which Panel ------ --------------- Concepts is a party or is bound. True and correct copies of all such leases have previously been delivered by Standard Pacific to HON. Except as set forth on Schedule 3.11, the Real Property and the Leased Property represent all of the ------------- real estate interests used, owned or occupied by Panel Concepts during the five- year period prior to the date of this Agreement. (b) Panel Concepts has good and marketable fee simple title to the Real Property identified on Schedule 3.11 free and clear of all Liens, other ------------- than (i) Liens for taxes not yet due, (ii) imperfections in title, if any, not material in amount and which, individually or in aggregate, do not materially interfere with the conduct of the Business, (iii) the matters set forth on Schedule 3.11 hereto, and (iv) installments of special assessments not yet - ------------- delinquent, recorded easements, covenants and other restrictions, and utility easements, building restrictions, zoning restrictions and other easements and restrictions existing generally with respect to properties of a similar character. Panel Concepts has the right to occupy and use the Leased Property described on, Schedule 3.11 in accordance with the terms of the applicable ------------ Leases. Except as disclosed on Schedule 3.11, to the best of Standard Pacific's ------------- knowledge, no claim has been asserted against Panel Concepts adverse to Panel Concepts' rights in such real estate interests. (c) Each Lease is in full force and effect. Neither Panel Concepts nor, to the best of Standard Pacific's knowledge, any other party thereto, is in breach thereunder or in default thereunder (with or without lapse of time or the giving of notice or both). (d) The Real Property and the Leased Property, and the present use by Panel Concepts of such real estate, does not violate any zoning, land use or other Law, except for such violations as would not in the aggregate have a Material Adverse Effect. 3.12 Personal Property. Except as set forth on Schedule 3.12, Panel ----------------- ------------- Concepts has good and marketable title to all personal property reflected on the September 30, 1997 Balance Sheet and all personal property acquired by Panel Concepts since the date thereof free and clear of all Liens, other than (a) property that has been disposed of in the ordinary course of business, (b) property disposed of pursuant to Sections 1.4(c)(i) or 1.6, (c) Liens for taxes ------------------ --- not yet due, and (d) imperfections in title, if any, not material in amount and which, individually or in the aggregate, do not materially interfere with the conduct of the Business. 3.13 Condition of Assets. The buildings, plants, structures, ------------------- equipment, and other assets of Panel Concepts are structurally sound, are in good operating condition and repair, normal wear and tear excepted, and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, equipment or assets is in need of maintenance or repairs except for ordinary, routine maintenance and repairs. 3.14 Contracts. --------- (a) Schedule 3.14 sets forth a list, as of the date hereof, of the ------------- following contracts, agreements, commitments or arrangements or other legally binding contractual rights or obligations (including court orders, injunctions and settlement agreements) (collectively, "Contracts") to which Panel Concepts --------- is a party or by which Panel Concepts or any of its assets is bound: (i) any employment, severance, management, or consulting agreement, or any other similar Contract involving compensation for employment or consulting services rendered or to be rendered; (ii) any distributorship, agency, manufacturer's representative or similar Contract; (iii) any collective bargaining agreement with any collective bargaining group or labor union; (iv) any credit agreement, loan agreement, indenture, note, bond, mortgage, security agreement, loan commitment, conditional sale or title retention agreement, equipment financing obligation or other evidence of indebtedness, or other Contract relating to the borrowing of funds by Panel Concepts; (v) guarantee, indemnity or similar Contract which by its terms Panel Concepts could (whether or not subject to such contingencies) be required to make payments in excess of $10,000 with respect to or as a result of liabilities, losses, costs or expenses paid or incurred by another Person, other than that certain guaranty of Standard Pacific's obligations under a credit agreement with Bank of America NT&SA, which guaranty will be terminated simultaneously with the Closing; (vi) any Contract with respect to letters of credit, surety or other bonds or pursuant to which any of the assets of Panel Concepts is or is to be subjected to a Lien; (vii) any open sales order involving amounts in excess of $100,000 which is not terminable by Panel Concepts at will without payment or penalty; (viii) any purchase order or requirements contract involving amounts in excess of $50,000 which is not terminable by Panel Concepts at will without payment or penalty; (ix) any equipment lease requiring annual expenditures involving amounts in excess of $50,000 which is not terminable by Panel Concepts at will without payment or penalty; (x) any vehicle lease which is not terminable by Panel Concepts at will without payment or penalty; (xi) any Contract for the purchase or sale of any assets (other than purchases or sales of inventory in the ordinary course of business consistent with past practice) involving the payment or potential payment, pursuant to the terms of any such Contract, by or to Panel Concepts of more than $75,000; (xii) any Contract limiting or restricting the ability of Panel Concepts from entering into or engaging in any market or line of business or competing against any Person; (xiii) any Contract creating a joint venture or partnership arrangement; (xiv) any Contract with Standard Pacific, any Affiliate of Standard Pacific, or any officer, director or employee of Panel Concepts; (xv) any Contract relating to the release, transportation or disposal of Hazardous Materials (as hereinafter defined) or the clean-up, abatement or other actions in connection with any Environmental Damages (as hereinafter defined); (xvi) any Contract relating to any domestic and foreign patent, trade name, trademark, trade dress, trade secret, design registration, inventors certificate, process, formula, know-how, engineering data, software, hardware, technology, assumed name right, copyright or service mark, and all registrat ions and applications therefor, and all extensions, reissuances or reexaminations thereof, that are owned, licensed or used by Panel Concepts (the "Intellectual Property"), other than licenses of off- --------------------- the-shelf software and other licenses of rights which are not material to the Business or financial condition of Panel Concepts; (xvii) any Contract for capital expenditures or the acquisition or construction of fixed assets; (xviii) any Contract with any Governmental Authority; or (xix) any Contract other than the Contracts listed above which involves aggregate future payments by or to Panel Concepts in excess of $75,000, or which is otherwise material to Panel Concepts. (b) Standard Pacific has delivered to or made available to HON true and correct copies of all of the Contracts and any amendments thereto. All of the Contracts are valid, binding and enforceable obligations of Panel Concepts, as the case may be, and are in full force and effect. There has been no breach of any Contract by Panel Concepts or, to the best of Standard Pacific's knowledge, any other Person that has not been waived or cured. 3.15 Litigation. Except as set forth on Schedule 3.15 or Sections 3.17 ---------- ------------- ------------- or 3.18 herein, there is no claim, action, suit, litigation, investigation, ---- administrative proceeding, arbitration or other proceeding ("Legal Proceeding") ---------------- that is pending or, to the best of Standard Pacific's knowledge, threatened against Panel Concepts. Set forth on the Schedule 3.15 is a description of (i) ------------- all Legal Proceedings brought or, to the best of Standard Pacific's knowledge, threatened against Panel Concepts or its Affiliates or predecessors-in-interest during the five-year period preceding the date hereof, together with a description of the outcome or present status thereof, and (ii) all judgments, orders, decrees, writs or injunctions entered into by or against Panel Concepts. 3.16 Permits. Panel Concepts has obtained all licenses, permits, ------- approvals, certifications, variances, waivers or consents issued by any Governmental Authority (coll ectively, the "Permits") which are required to be ------- obtained by it under all applicable Laws, including Environmental Laws (as hereinafter defined). Panel Concepts is in full compliance with all material terms and conditions of such Permits. 3.17 Environmental Matters. --------------------- (a) Except as set forth in Schedule 3.17: ------------- (i) Panel Concepts is in full compliance with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in applicable Environmental Laws; (ii) neither Panel Concepts, nor any other previous owner, tenant, occupant or user of the Real Property, the Leased Property or any other real property owned leased or operated by Panel Concepts or its predecessors in interest (collectively, the "Property") nor any other -------- Person has engaged in or permitted any operations or activities upon, or any use or occupancy of the Property, or any portion thereof, resulting in the emission, release, discharge, dumping or disposal of any Hazardous Materials on, under, in or about the Property, nor have any Hazardous Materials migrated from the Property to, upon, about or beneath other properties, nor have any Hazardous Materials migrated or threatened to migrate from other properties to, upon, about or beneath the Property; (iii) there are no past or present violations of Environmental Laws on the Property or elsewhere, nor any event, condition, circumstance, activity, practice, incident, action or plan which is reasonably likely to interfere with or prevent continued compliance with or which gives rise to any common law or statutory liability, or otherwise form the basis of any claim, action, suit, or proceeding, against Panel Concepts based on or resulting from the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge or release into the environment, of any Hazardous Materials; (iv) no underground improvements, including but not limited to treatment or storage tanks, sumps or water, gas or oil wells, are or have been located on the Property; and (v) Panel Concepts has taken all actions necessary under applicable Environmental Laws to register any Products or materials required to be registered by Panel Concepts (or its agents) thereunder. (b) For purposes of this Agreement, the following terms have the following meanings: (i) "Environmental Damages" means any and all liabilities which are --------------------- incurred at any time as a result of the existence at or prior to Closing of Hazardous Material upon, about, beneath the Property or migrating or threatening to migrate to or from the Property, or the presence upon, about or beneath any other property of Hazardous Materials generated by or otherwise relating to the Business, or the violation prior to the Closing of Environmental Laws, regardless of whether the existence of such Hazardous Material or the violation of Environmental Laws arose prior to the present ownership or operation of the Property or the Business, and including without limitation: (1) Damages for personal injury, or injury to property or natural resources, foreseeable or unforeseeable, including, without limitation, the cost of demolition and rebuilding of any improvements on real property, and penalties; (2) Fees incurred for the services of attorneys, consultants, contractors, experts, laboratories and all other costs incurred in connection with the investigation or remediation of Hazardous Materials or violation of Environmental Laws including, but not limited to, the preparation of any feasibility studies or reports or the performance of any cleanup, remediation, removal, response, abatement, containment, closure, restoration or monitoring work required by any Governmental Authority, or reasonably necessary to make full economic use of the Property or any other property in a manner consistent with its intended use or otherwise expended in connection with such conditions, and including without limitation any attorneys' fees, costs and expenses incurred in enforcing this Agreement or collecting any sums due hereunder; (3) Liability to any third person or Governmental Authority to indemnify such Person or agency for costs expended in connection with the items referenced in Section 10.2; and ------------ (4) Diminution of the value of the Property and damages for the restriction on the use of or adverse impact on the marketing of rentable or usable space or of any amenity of the Property. (ii) "Environmental Laws" means all applicable Laws, Permits and similar items of all Governmental Authorities and all applicable judicial, administrative, and regulatory judgments, decrees, orders, writs or injunctions relating to the protection of human health or the environment, including, without limitation: (1) All requirements pertaining to reporting, licensing, permitting, investigation, and remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials; (2) All requirements pertaining to the protection of the health and safety of employees or the public; and (3) All other limitations, restrictions, conditions, standards, prohibitions, obligations, schedules and timetables contained therein or in any notice or demand letter issued, entered, promulgated or approved thereunder. (iii) "Hazardous Material" means any substance: ------------------ (1) the presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action, policy or common law; or (2) which is itself or contains a "hazardous waste," "hazardous substance," pollutant or contaminant under any federal, applicable state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. (S)(S) 9601 et seq.) and/or the Resource Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.). 3.18 Regulatory Compliance. Except as disclosed on Schedule 3.18 or in --------------------- ------------- Section 3.16 or 3.17 herein, Panel Concepts has complied with all Laws - ------------ ---- (including, without limitation, zoning ordinances, Environmental Laws, building codes, civil rights laws, wages, hours, collective bargaining, occupational health and safety, antitrust, consumer protection, currency exchange, equal opportunity, pensions, securities, and trading-with-the-enemy) applicable to it and to the conduct of its Business, except for such failures to comply as would not in the aggregate have a Material Adverse Effect. Panel Concepts is not in default under, and no event has occurred which, with the lapse of time, giving of notice or action by a third party, could result in default under, the terms of any judgment, decree, order, injunction or writ of any Governmental Authority, whether at law or in equity, issued or entered against Panel Concepts. 3.19 Customers and Suppliers. The attached Schedule 3.19 contains ----------------------- ------------- a list of (a) Panel Concepts's ten largest customers for the year ended December 31, 1996, and (b) Panel Concepts' top ten dollar volume vendors for the year ended December 31, 1996. Panel Concepts has not been advised by any customer or supplier representing purchases and sales of 5% or more of total sales for the year ended December 31, 1996, that such customer or supplier was terminating its relationship with Panel Concepts or would not continue to purchase Products or services from Panel Concepts in the future because of any dissatisfaction with Panel Concepts' performance, or for any other reason. Panel Concepts is not aware of any adverse conditions affecting the supply of materials available to Panel Concepts that would have a Material Adverse Effect. 3.20 Intellectual Property. --------------------- (a) Schedule 3.20 attached hereto sets forth a complete and correct ------------- list (with an indication of the record owner and identifying number) of all domestic and foreign patents, design registrations, inventors certificates, trademarks, service marks, trade names and copyrights for which registrations have been obtained (and all applications for, or extensions or reissuances or reexaminations, or provisional applications of, any of the foregoing) which are owned by Panel Concepts (the "Registered Intellectual Property"). True, correct -------------------------------- and complete copies of such patents, design registrations, inventors certificates, trademarks, service marks, trade names and copyrights (and all applications for, or extensions or reissuances or reexaminations, or provisional applications of, any of the foregoing) identified on Schedule 3.20 have been ------------- delivered to HON. Panel Concepts is the sole owner and, to the best of Standard Pacific's knowledge, has the exclusive right to use, free and clear of any Liens, all of the Registered Intellectual Property. (b) There is no claim or demand of any Person pending or, to the best of Standard Pacific's knowledge, threatened, or has been brought to the attention of Standard Pacific or Panel Concepts, which challenges (i) the rights of Panel Concepts in respect of any patents, trademarks, service marks, trade names or copyrights (or applications for, or extensions or reissuances of, any of the foregoing) which are owned, licensed or used by Panel Concepts, or (ii) the rights of Panel Concepts in respect of any processes, formulas, confidential information, trade secrets, know-how, engineering data, software, hardware technology or other Intellectual Property which are owned, licensed or used by Panel Concepts. No patent, trademark, service mark, trade name, copyright, process, formulas, confidential information, trade secret, know-how, engineering data, technology or other intellectual property which is owned or licensed by Panel Concepts, to the best of Standard Pacific's knowledge, infringes or is being infringed by others. To the best of Standard Pacific's knowledge, the Business does not involve employment of any Person in a manner which violates any non-competition or non-disclosure agreement which such Person entered into in connection with any former employment. To the best of Standard Pacific's and Panel Concepts' knowledge, there are no reasons to believe that any of the patents, trademarks or copyrights (or application therefor) of Panel Concepts are invalid or unenforceable, and all maintenance and/or amounts relating thereto have been timely paid. 3.21 Employees. There are no strikes, slowdowns or work stoppages, --------- pending, or, to the best of Standard Pacific's knowledge, threatened which involve any employees employed by Panel Concepts. All amounts withheld, required to be withheld, paid or required to be paid prior to the Closing Date in respect of all employees of Panel Concepts pursuant to applicable Law including statutes relating to income and other Taxes, unemployment insurance, employment standards, pay equity, health insurance, employee health tax, workers' compensation and statutory pension plans have been withheld, paid, discharged or otherwise settled by Panel Concepts. Panel Concepts has not experienced any labor difficulties, including, without limitation, strikes, slowdowns, or work stoppages, within the five-year period preceding the date hereof. Panel Concepts is not a party to any collective bargaining or union contract, and, to the best of Standard Pacific's knowledge, there exists no current union organizational effort with respect to any of Panel Concepts' employees. 3.22 Employee Benefits. ----------------- (a) Except as set forth on the attached Schedule 3.22, Panel Concepts ------------- neither is nor was a party to, maintains or has maintained, or contributes or has contributed to, any (i) severance or employment agreement with any current or former director, officer or Employee, (ii) severance program or policy, (iii) plan or arrangement relating to its current or former directors, officers or Employees which contains change in control provisions, or (iv) employee pension or welfare pl ans, (as defined in the Employee Retirement Income Security Act of 1974, as amended, "ERISA"), any collective bargaining agreement, consulting ----- agreement, or any bonus, pension, profit sharing, retirement, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, supplemental unemployment, disability, death benefit, hospitalization, medical, workers compensation or other plan, arrangement or understanding (collectively, the "Employee Plans"), nor has Panel Concepts, or any of Panel Concepts' officers or - --------------- directors, taken any action directly or indirectly which obligates Panel Concepts to institute or modify or change any such Employee Plan, any change in any actuarial or other assumption used to calculate funding obligations with respect to any of Panel Concepts' Employee Plans, or any change in the manner in which contributions to any of Panel Concepts' Employee Plans are made or the basis on which such contributions are determined. (b) Schedule 3.22 lists all of the Employee Plans. True, complete and ------------- correct copies of the Employee Plans and the summary plan descriptions, the most recent annual reports on Internal Revenue Service Form 5500 and actuarial reports, if applicable, and if not applicable, statement of trust assets, have been made available and delivered to HON. (c) With respect to the Employee Plans, and to any other employee benefit plan, program, agreement or arrangement to which Panel Concepts or any other trade or business, whether or not incorporated (an "ERISA Affiliate"), that --------------- together with Panel Concepts would be deemed a "single employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code, has made, or was required to make, contributions at any time prior to the date hereof, no event has occurred, and there exists no condition or set of circumstances, in connection with which Panel Concepts could be subject to any liability under ERISA, the Code or any other applicable Law. (d) Each Employee Plan has been administered in accordance with its terms, and all of the Employee Plans have been operated, and are in compliance with the applicable provisions of ERISA, the Code and all other applicable laws. Each Employee Plan that is intended to be qualified under Section 401(a) or 401(k) of the Code has received a favorable determination letter from the IRS covering the Tax Reform Act of 1986, that it is so qualified and each trust established in connection with any Employee Plan that is intended to be exempt from federal income taxation under Section 501(a) of the Code has received a determination letter from the IRS that such trust is so exempt, and no fact or event has occurred since the date of any determination letter from the IRS which is reasonably likely to affect adversely the qualified status of any such Employee Plan or the exempt status of any such trust. There are no pending or threatened or anticipated claims under or with respect to any Employee Plan by or on behalf of any current or former director, officer or Employee, or dependent on beneficiary thereof, or otherwise (other than routine claims for benefits). All contributions required to be made by Panel Concepts under applicable Law or the terms of any Employee Plan or collective bargaining agreement as of the Closing Date have been made as of such date. (e) No Employee Plan is (i) a "defined benefit" plan (as defined in Section 3(35) of ERISA), (ii) a "multiemployer plan" within the meaning of Section 3(37) of ERISA, (iii) a "multiple employer" or a "multiple employer welfare arrangement" within the meaning of Section 514(b)(6) of ERISA, or (iv) a "welfare benefit fund" as defined in Section 419(e) of the Code. (f) No Employee Plan provides medical, life or other welfare benefits (whether or not insured), with respect to current or former Employees after retirement or other termination of service (other than coverage mandated by applicable law). With respect to any contract or arrangement with an insurance company providing funding under any Employee Plan, there is no material liability for any retroactive rate adjustment. Panel Concepts has the right to amend or terminate its participation with respect to each Employee Plan. Each Employee Plan that is a "group health plan," as defined in Section 5000 of the Code has been operated in compliance with Section 4980B of the Code and the secondary payor requirements of Section 1862(b) of the Social Security Act. Except as set forth on Schedule 3.22, no claim for medical benefits has been ------------- incurred since February 1, 1997 under any Employee Plan with respect to any current or former Employee (or the spouse or dependents of such Employees) in excess of $50,000. (g) No current or former Employee will be entitled to any payment, additional benefits or any acceleration of the time of payment or vesting of any benefits under any Employee Plan as a result of the transactions contemplated by this Agreement (either alone or in conjunction with any other event such as a termination of employment) and no trustee under any "rabbi trust" or similar arrangement in connection with any Employee Plan will be entitled to any payment as a result of the transactions contemplated by this Agreement. (h) None of Panel Concepts or any of its current or former directors, officers, Employees or any other "fiduciary," as such term is defined in Section 3 of ERISA, has committed any material breach of fiduciary responsibility imposed by ERISA or any other applicable law with respect to the Employee Plans which would subject HON, Panel Concepts or any of their respective directors, officers or Employees to any material liability under ERISA or any applicable law. (i) Panel Concepts has not incurred any lien under Section 401(a)(29) or any material liability for any tax or civil penalty imposed by Sections 4971, 4975 or 4976 of the Code or Section 502 of ERISA and no condition or set of circumstances exists that presents a risk to Panel Concepts of incurring any such lien or liability. (j) Panel Concepts (i) is in compliance in all material respects with all applicable Laws respecting employment, employment practices, terms and conditions of employment and wages and hours (including, but not limited to, the Worker Adjustment Retraining Notification Act, the Age Discrimination in Employment Act, as amended, the Civil Rights Act of 1964, as amended, the Equal Pay Act, the Occupational Safety and Health Act, the Fair Labor Standards Act, the Americans with Disability Act of 1990, the Family and Medical Leave Act of 1993, the Immigration and Nationality Act of 1952, as amended by the Immigration Reform and Control Act of 1986 and the regulations promulgated thereunder, and any other federal, state or local law regulating employment or protecting employee rights), in each case, with respect to current and former Employees and independent contractors of Panel Concepts, (ii) has withheld all material amounts required by applicable Laws or by agreement to be withheld from the wages, salaries and other payments to such current and former Employees and independent contractors, (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing, and (iv) is not liable for any payment to any trust or other fund or to any governmental entity with respect to unemployment compensation benefits, workers compensation, social security or other benefits for current or former Employees and independent contractors of Panel Concepts. (k) Panel Concepts has, or will have by the Closing, taken all actions necessary to bring and maintain all employees and employment records in compliance with Section 274A of the Immigration and Nationality Act of 1952, as amended by the Immigration Reform and Control Act of 1986 and the related regulations promulgated thereunder. 3.23 Taxes. Except as set forth on the Schedule 3.23 attached hereto: ----- ------------- (a) Panel Concepts has duly and timely filed all Tax Returns (including without limitation in respect of estimated Taxes) required to be filed by it with the appropriate Governmental Authorities, or requests for extensions to file such Tax Returns have been timely filed and granted and have not expired. All such Tax Returns were at the time of filing and are as of the date hereof correct and complete in all material respects. All Taxes owed by Panel Concepts (whether or not shown on any Tax Return) have been paid within the time and in the manner prescribed by law. (b) No claim has ever been made by a Taxing authority in a jurisdiction where Panel Concepts has never filed a Tax Return that Panel Concepts is or may be subject to taxation by that jurisdiction. The attached Schedule 3.23 sets forth each state, local and foreign jurisdiction in which - ------------- Panel Concepts (i) filed an income or franchise Tax Return, whether on a consolidated, combined or separate return basis, during the five year-period ended December 31, 1996, and (ii) collected or remitted any sales and/or use Taxes during the five-year period ended December 31, 1996. (c) The Financial Statements reflect an adequate reserve in accordance with GAAP for all Taxes payable by Panel Concepts for all Taxable periods and portions thereof accrued through the respective dates of such Financial Statements. All deficiencies for any Taxes that have been proposed, asserted, or assessed against Panel Concepts have been fully paid, or are fully reflected as a liability in such Financial Statements, or are being contested and an adequate reserve therefor has been established and is fully reflected in accordance with GAAP in such Financial Statements. (d) Panel Concepts is not a party to any pending audit, examination, action or proceeding for the assessment or collection of any Taxes, nor, to the best of Standard Pacific's knowledge, is any such audit, examination, action or proceeding threatened. (e) There are no Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of Panel Concepts or the Shares. (f) The federal, state, local, and foreign income Tax Returns of Panel Concepts have been examined by and settled with the Internal Revenue Service (the "IRS") and other applicable taxing authorities, or the statutes of--- limitations for the assessment of Taxes with respect to the Taxable years or other periods covered by such Tax Returns have expired. Panel Concepts is not subject to any agreemen ts, waivers or other arrangements extending the statute of limitations for the assessment, collection or levy of any Taxes for any Taxable year or other period. Copies of all income Tax Returns of Panel Concepts filed in respect of any Taxable year for which the assessment of Taxes is not barred by the statute of limitations or that has not been closed after examination by the IRS or other applicable taxing authority have heretofore been delivered to HON and all such Tax Returns are listed on the attached Schedule 3.23. ------------- (g) Copies of all Tax agreements (including, without limitation, agreements providing for the allocation or sharing of or indemnification with respect to Taxes) to which Panel Concepts is a party, including any novations, transfers or assignments thereof, have heretofore been delivered to HON, and all such agreements are listed on the attached Schedule 3.23. ------------- (h) Panel Concepts has not filed a consent pursuant to, or agreed to the application of, Section 341(f) of the Code. (i) Panel Concepts has not made any payments, is not obligated to make any payments, and is not a party to any agreement that could obligate it to make any payments, the deductibility of which would be disallowed (in whole or in part) under Section 280G of the Code. (j) Standard Pacific is not a foreign person within the meaning of, and no Tax is required to be withheld as a result of any the transactions contemplated by this Agreement pursuant to, Section 1445 or any other provision of the Code or of any other state, local or foreign laws. (k) Panel Concepts has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Taxes within the meaning of Section 6662 of the Code. (l) All Taxes that are required by law to be withheld or collected by Panel Concepts have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Authority or properly segregated or deposited as required by applicable law. (m) Panel Concepts (A) has not been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was Standard Pacific), and (B) has no liability for the Taxes of any other Person under Treas. Reg. (S) 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by Contract or otherwise. (n) Panel Concepts has not executed or entered into any closing agreement pursuant to Section 7121 of the Code, or any predecessor provision thereof, or any similar provision of state or local law. (o) None of the assets owned by Panel Concepts is property that is required to be treated as owned by any other Person pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, as in effect immediately prior to the enactment of the Tax Reform Act of 1986, or is "tax-exempt use property" within the meaning of Section 168(h) of the Code. (p) Panel Concepts has not taken any action in anticipation of the Closing not expressly required by this Agreement, or not in accordance with past practice, that would have the effect of deferring any liability for Taxes of Panel Concepts to any Taxable period (or portion thereof) ending after the Closing Date. (q) Panel Concepts is not nor will be required to include any amount in its gross income or exclude any amount of its deductions in any Taxable period ending after the Closing Date by reason of a change in accounting method or use of the installment method of accounting under Section 453 of the Code in any Taxable period ending on or before the Closing Date. (r) No power of attorney has been granted by Panel Concepts with respect to any matter relating to Taxes which is currently in force. For purposes of this Agreement, (i) the term "Tax" (including, with --- correlative meaning, the terms "Taxes" and "Taxable") means all federal, state, ----- ------- local, and foreign net income, gross income, profits, franchise, gross receipts, payroll, sales, employment, use, occupation, license, value added, property, ad valorem, withholding, excise, user, fuel, excess or windfall profits, alternative or add-on minimum, custom duties, gains, transfer, documentary, stamp, and other taxes, duties, fees, assessments or charges of any nature whatsoever, together with all interest, penalties, fines and additions to tax or additional amounts imposed with respect thereto, and (ii) the term "Tax Returns" ----------- means any return, report, statement, election, information return or other document (including schedules or any related or supporting information) filed or required to be filed with any Governmental Authority in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax. 3.24 Brokers. No Person is or will become entitled to receive any ------- brokerage or finder's fee, financial advisor fee or other similar payment for the transactions contemplated by this Agreement by virtue of having been engaged by or acted on behalf of Standard Pacific. 3.25 Product Warranties and Returns; Warranty Costs. Except as set ---------------------------------------------- forth on the attached Schedule 3.25, true, accurate and complete copies of which ------------- have heretofore been made available to HON, Panel Concepts neither (i) makes nor has previously made any product warranties in connection with the sale of its Products, nor (ii) has any presently effective agreement, contract or arrangement with respect to the return of Products or rebates, credits or similar allowances with respect thereto. Panel Concepts has not received notice of any claim that Panel Concepts is under any liability or obligation with respect to product warranty or the return of Products or rebates, credits or similar allowances with respect thereto, and for which an adequate reserve is not set forth on the Financial Statements or the Closing Balance Sheet. 3.26 Insurance. The attached Schedule 3.26 lists each insurance --------- ------------- policy (specifying the location, insured, insurer, beneficiary of the policy, amount of coverage, type of insurance and policy number) presently maintained by Panel Concepts, including any policies providing "occurrence-based" coverage for prior periods. Except as indicated on the attached Schedule 3.26, no insurance ------------- policy maintained by Panel Concepts requires the consent of any party other than Standard Pacific or Panel Concepts prior to the cancellation or termination of such policy. Except as set forth on attached Schedule 3.26, all of such ------------- insurance policies are in full force and effect, and all premiums paid thereon, no notice of cancellation or termination with respect to any such policy has been received and Panel Concepts is not in default with respect to its obligations under any of such insurance policies. The attached Schedule 3.26 ------------- identifies all risks which Panel Concepts has designated as being self-insured. Panel Concepts has not been refused any insurance with respect to its assets or operations, nor has its coverage been limited, by any insurance carrier to which it has applied for any such insurance or with which it has carried insurance during the last five years. Each such insurance policy will by its terms remain in full force and effect until the Closing unless terminated in accordance with such policy, and an equivalent substitution policy, without lapse of coverage, is obtained by Panel Concepts. 3.27 Absence of Certain Commercial Practices. Neither Panel Concepts nor, to the best of Standard Pacific's knowledge, any officer, director, employee, trustee, or agent of Panel Concepts or any Person acting on behalf of any of the foregoing, has given or agreed to give any (i) individual gift or similar benefit of more than nominal value to any customer, supplier, Governmental Authority (including governmental employees or officials) or any other Person who is or may be in a position to help, hinder or assist Panel Concepts or the Person giving such gift or benefit in connection with any actual or proposed transaction relating to Panel Concepts' Business, which gifts or similar benefits would individually or in the aggregate subject Panel Concepts or any officer, director, employee or agent of Panel Concepts to any fine, penalty, cost or expense or to any criminal proceeding, (ii) receipts from or payments to any governmental officials or employees, (iii) commercial bribes or kick-backs, (iv) political contributions, or (v) any receipts or disbursements in connection with any unlawful boycott. 3.28 Banking and Agency Arrangements. ------------------------------- (a) The attached Schedule 3.28 sets forth a correct and complete list ------------- of: (i) each bank, savings and loan or similar financial institution in which Panel Concepts has an account or safe deposit box or other custodial arrangement within the previous three years and the location and numbers of such accounts or safe deposit boxes maintained by Panel Concepts; and (ii) the names of all Persons authorized to draw on each such account or to have access to any such safe deposit box facility. (b) Except as set forth on the attached Schedule 3.28, Panel Concepts ------------- has not granted any general or special powers of attorney or any other agency arrangement. 3.29 Affiliated Transactions; Certain Advances; Insider Interests. ------------------------------------------------------------ Except as set forth on the attached Schedule 3.29 or Schedule 3.14, to the best ------------- ------------- of Standard Pacific's knowledge, no officer, director, shareholder or Affiliate of Panel Concepts or any individual in such officer's, director's, shareholder's or Affiliate's immediate family is a party to any agreement, contract, commitment or transaction with Panel Concepts or has any interest in any properties, real or personal, tangible or intangible, or assets used by Panel Concepts (including, without limitation, Intellectual Property). Except for travel advances, and advances on accrued salary or bonus due or to become due in the ordinary and normal course of business, there are no receivables of Panel Concepts owing by any director, officer or employee of any of Panel Concepts or owing by the corporations, partnerships, firms or organizations in which directors, officers or employees of Panel Concepts have any substantial interest. 3.30 Backlog. Panel Concepts has delivered to HON a statement of back- ------- log dated as of a recent date, setting forth a true, complete and correct list of the backlog of firm orders as of the date thereof in all material respects. 3.31 Pre-closing Transfer Transactions. The Pre-closing Transfer --------------------------------- Agreements have been or prior to the Closing will have been duly executed and delivered by each of the parties thereto, are or prior to the Closing will be in full force and effect, and are or prior to the Closing will be the valid, legally binding and enforceable obligations of each of the parties thereto. Panel Concepts has provided HON with true, complete and correct copies of all of the Pre-closing Transfer Agreements, including, without limitation, all transfer or assignment agreements. ARTICLE REPRESENTATIONS AND WARRANTIES OF HON ------------------------------------- HON makes the following representations and warranties to Standard Pacific: 4.1 Organization; Power and Authority. HON is a corporation duly --------------------------------- organized, validly existing and in good standing under the laws of the State of Iowa. HON has all corporate power necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. 4.2 Authorization, Execution and Validity. The execution, delivery ------------------------------------- and performance by HON of this Agreement and the consummation by HON of the transactions contemplated hereby have been duly authorized by all necessary corporate action. This Agreement has been duly and validly executed and delivered by HON, constitutes its legal, valid and binding obligation and is enforceable against HON in accordance with its terms. 4.3 No Conflict; HON Consents. Neither the execution, delivery and ------------------------- performance by HON of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) conflict with or violate any Law applicable to HON, (b) violate the Articles of Incorporation and By-laws of HON, or (c) require any consent of, or the registration, declaration or filing of the document or report with or notification to, any Governmental Authority. 4.4 Brokers. No Person is or will become entitled to receive any ------- brokerage or finder's fee, advisory fee or other similar payment for the transactions contemplated by this Agreement by virtue of having been engaged by or acted on behalf of HON. 4.5 Purchase for Investment. HON is acquiring the Shares for its own ----------------------- account for investment and not for resale or distribution within the meaning of Section 2(11) of the 1933 Act. HON will refrain from transferring or otherwise disposing of any of the Shares, or any interest therein, in such manner as to cause Standard Pacific to be in violation of the registration requirements of the 1933 Act or applicable state securities or blue sky laws. 4.6 Investigation. In executing this Agreement, HON is relying on the ------------- provisions set forth herein and not any other statements, representatives or assurances of any kind made by Standard Pacific, Panel Concepts or their respective representatives or any other person, including without limitation, any forecasts, projections or budgets provided by such persons. 4.7 Financing. HON has available cash under presently existing and --------- enforceable credit lines that is sufficient to consummate the transactions contemplated hereby. No other financing is required to enable HON to consummate the transactions contemplated hereby. To the extent such borrowings become unavailable, HON will promptly arrange for alternate financing for the transactions contemplated hereby, it being understood that any inability by HON to obtain any necessary financing for the transactions contemplated hereby shall not excuse HON's obligation to timely consummate the transactions contemplated hereby. 4.8 Legal Proceedings. There are no Legal Proceedings pending or, to ----------------- the best of HON's knowledge, threatened against, relating to or affecting HON or any of its assets or properties which could reasonably be expected to result in the issuance of any writ, judgment, decree, injunction or similar order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated hereby. ARTICLE 5 COVENANTS --------- 5.1 Pre-closing Access to Information; Physical Inventory. ----------------------------------------------------- (a) From the date hereof through the Closing Date, upon reasonable notice from HON, Standard Pacific will, and will cause Panel Concepts and their respective directors, officers, employees, agents, consultants, advisors, or other representatives, including legal counsel, accountants, and financial advisors, to afford HON and its directors, officers, employees, agents, consultants, advisors, or other representatives, including legal counsel and accountants (collectively, "HON's Advisors") reasonable access during normal -------------- business hours to the personnel, property, contracts, books and records, and other documents and data of Panel Concepts, and to furnish HON and HON's Advisors with copies of all such contracts, books and records, and other existing documents and data as HON may reasonably request. (b) HON acknowledges that certain of the information which has been and may be made available to it by Standard Pacific is proprietary and includes confidential information and such information is and shall be subject to the terms of the Confidentiality Agreement dated December 2, 1996, between Standard Pacific and HON which shall continue in full force and effect notwithstanding the execution of this Agreement. 5.2 Conduct of Business. ------------------- (a) From the date hereof through the Closing Date, Standard Pacific shall cause Panel Concepts to use all commercially reasonable efforts to: (i) preserve its relationships with suppliers, customers, employees, creditors and Governmental Authorities, (ii) maintain its existing insurance coverage, (iii) perform its obligations under the its Contracts and Permits, (iv) comply with all applicable Laws, and (v) otherwise carry on its business in the ordinary course and consistent with past practice except as otherwise contemplated in this Agreement. (b) Without the prior written consent of HON (which consent shall not be unreasonably withheld) Standard Pacific will cause Panel Concepts not to: (i) amend its Certificate of Incorporation and By-laws; (ii) except as contemplated by this Agreement, including Sections -------- 1.4(c)(i) and 1.6, declare, set aside or pay any dividend or make any - -------- --- distribution on or with respect to shares of its capital stock or redeem, repurchase or otherwise acquire any shares of its capital stock; (iii) except as contemplated by this Agreement, including Sections 1.4(c)(i) and 1.6, make any cash payments to Standard Pacific or any Affiliate - --------- --- of Standard Pacific or any subsidiary of Standard Pacific other than pursuant to, and in accordance with the terms of, a Contract listed or past practice described on Schedule 3.14; ------------- (iv) issue, grant, sell, assign or pledge any shares of, or rights of any kind to acquire any shares of, its capital stock of any class (whether through the issuance or granting of convertible securities, options, warrants, commitments, subscriptions, rights to purchase or otherwise); (v) enter into any merger, consolidation, recapitalization or other business combination or reorganization; (vi) create, incur, assume or prepay any indebtedness for borrowed money; (vii) except as contemplated by this Agreement, including Sections -------- 1.4(c)(i) and 1.6, and the sale of aluminum inventory for scrap, sell, ----------------- assign, transfer or permit the creation of any Lien on any portion of the assets of Panel Concepts, other than in the ordinary course of business consistent with past practice; (viii) enter into any Contract outside the ordinary course of business; (ix) amend or terminate any material Contract or Permit; (x) increase the rate of compensation for any employee of Panel Concepts or effect any general increase in compensation for employees, except for individual normal increases in compensation of non-executive Employees consistent with past practice, which shall not exceed 4%; (xi) enter into, adopt or, except as may be required by Law, amend or terminate any Employee Plan, or pay any benefit not required by any Employee Plan on the date of this Agreement; (xii) make commitments for any capital project, other than commitments contained in Panel Concepts' capital budget for the fiscal year ending December 31, 1997 and commitments in the ordinary course of business not exceeding in the aggregate $50,000; (xiii) make any material change in any method of accounting or accounting practice; (xiv) make any loans, advances or capital contributions to, or investments in, any Person, other than in the ordinary course of business consistent with past practice; (xv) adopt, enact, authorize, ratify, approve, cause or suffer to exist any material amendment, modification, implementation or termination of any collective bargaining agreement (other than any such amendment, modification, implementation or termination required under applicable Law or under the terms of any Employee Plan or collective bargaining agreement); or (xvi) agree to take any of the actions described in Sections 5.2(b)(i) through 5.2(b)(xv). --------- ---------- 5.3 Insurance. Between the date of this Agreement and the Closing --------- Date, Standard Pacific shall or shall cause Panel Concepts to use its best efforts to maintain in full force and effect all of the presently existing insurance policies that cover Panel Concepts. HON understands and acknowledges that Panel Concepts is insured under Standard Pacific's general liability, property, auto, boiler and machinery and workers' compensation policies and that such insurance shall cease to cover Panel Concepts as of the Closing. 5.4 Consents and Approvals. As promptly as practicable after the date of this Agreement, each of the parties shall use all commercially reasonable efforts to obtain as promptly as practicable all Consents required to be obtained by it in connection with the consummation of the transactions contemplated by this Agreement, including the obtaining by Standard Pacific of the Consents described on Schedule 3.7; provided, however, that nothing ----------- -------- -------- contained in this Agreement shall require Standard Pacific, Panel Concepts or HON to pay any fee or other amount to obtain any such Consent, other than filing and similar fees required by any Governmental Authority. 5.5 Legal Proceedings; Injunctions. (a) Standard Pacific, HON and ------------------------------ Panel Concepts shall use all commercially reasonable efforts to cooperate with each other in connection with any claim, action, suit, proceeding, inquiry or investigation with any other Person which relates to the execution and delivery of this Agreement or the consummation of the transactions contemplated hereunder. (b) Without limiting the generality or effect of any other provision hereof, if any United States, state or foreign court having jurisdiction over any party issues or otherwise promulgates any Order prior to the Closing which prohibits the consummation of the transactions contemplated hereby, the parties will use their best efforts to have such Order dissolved or otherwise eliminated as promptly as possible and, prior to or after the Closing, to pursue the underlying litigation diligently and in good faith; provided, however, that in -------- ------- no event will such efforts require either party as a condition to or as a result of dissolving or elimination such Order to pay damages, other than any incidental costs of such litigation, or to accept any hold-separate order, agree to any divestiture or any limitation on the conduct by HON, Panel Concepts, or Standard Pacific of their respective businesses or other action which would have an adverse effect on the value to HON or Standard Pacific of the transactions contemplated by this Agreement. 5.6 Acquisition Proposals. Until such time, if any, as this Agreement ---------------------- is terminated pursuant to Article 9, Standard Pacific will not, and will cause Panel Concepts and each of their directors, officers, employees, agents, consultants, advisors, or other representatives, including legal counsel, accountants, and financial advisors, not to, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than HON) relating to any transaction involving the sale of the business or substantially all of the assets of Panel Concepts, or any of the capital stock of Panel Concepts, or any merger, consolidation, business combination, or similar transaction involving Panel Concepts. 5.7 Notice. During the period from the date hereof to the Closing, ------ Standard Pacific shall promptly notify HON of the institution or settlement of any litigation, action, suit, investigation, claim or proceeding involving Panel Concepts and of any developments therein. 5.8 Intercompany Indebtedness. Prior to the Closing, (i) all obligations owing from Standard Pacific or any of its Affiliates to Panel Concepts will be canceled without further payment or repaid by Standard Pacific with the amount of such repayment thereafter being distributed to Standard Pacific in the form of dividend and (ii) all obligations owing from Panel Concepts to Standard Pacific or any Affiliate of Standard Pacific will be canceled. 5.9 Best Efforts; Cooperation. Upon the terms and subject to the ------------------------------- conditions herein provided, each party agrees to use all commercially reasonable efforts to take or cause to be taken all action, to do or cause to be done, and to assist and cooperate with the other party thereto in doing, all things necessary, proper or advisable under the applicable Laws, to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. 5.10 Contact with Customers and Suppliers. Prior to the Closing, ------------------------------------ HON and its representatives shall be provided with reasonable access to the customers and suppliers of Panel Concepts in connection with the transactions contemplated hereby subject to the prior written consent of Panel Concepts or Standard Pacific, such consent not to be unreasonably withheld. 5.11 Plant Closing Obligations. Prior to the Closing Date, neither ------------------------- Standard Pacific nor Panel Concepts shall take any action which could be construed as a "plant closing" or "mass layoff," or which would result in any Panel Concepts employee retained or employed suffering or deeming to have suffered any "employment loss," as those terms are defined in the Worker Adjustment Retraining and Notification Act, as amended, and the rules and regulations thereunder. 5.12 Payment of Bonuses at Closing. Simultaneously with the Closing, ----------------------------- HON will cause Panel Concepts to pay all accrued employee bonuses, including any accumulated bonus pool. Any accumulated bonus pool will be paid out in the manner determined in the sole and absolute discretion of Standard Pacific, and at the Closing Standard Pacific will deliver to HON and Panel Concepts a schedule setting forth the manner in which any such accumulated bonus pool is to be paid. ARTICLE 6 POST CLOSING COVENANTS ---------------------- 6.1 Limitation on Competition. ------------------------- (a) Period and Conduct. As further consideration for the purchase ------------------ and sale of Panel Concepts and the transactions contemplated by this Agreement, during the period commencing on the Closing Date, and ending on the date which is three years thereafter, Standard Pacific and its Affiliates shall not: (i) directly or indirectly compete with HON or Panel Concepts in the manufacture, production, design, engineering, importation, purchase, marketing, sale, distribution, research or development of any Products ("Product Activity"); ---------------- (ii) solicit, or accept orders or business of any kind relating to the manufacture, production, design, engineering, importation, purchase, marketing, sale, distribution, research or development of any Products from any customer or active prospect of HON or Panel Concepts; or (iii) solicit any employee of HON or Panel Concepts or former employee of Panel Concepts hired by HON to terminate his or her employment with HON or Panel Concepts. (b) Territory. Standard Pacific and its Affiliates shall refrain --------- from engaging in the activities described in this Section 6.1 during the period ----------- specified in Section 6.1(a) hereof in any of the United States of America, -------------- Puerto Rico, the Virgin Islands, Canada and all other countries in the world. (c) Definition. Standard Pacific or any of its Affiliates shall be ---------- deemed to be competing with HON or Panel Concepts if Standard Pacific or any of its Affiliates is engaged or participates in any activity or activities described in subsection (a) of this Section 6.1, directly or indirectly, whether ----------- for its own account or for that of any other Person and whether as a shareholder, partner or investor controlling any such Person or as principal, agent, representative, proprietor, or partner, or in any other similar capacity. (d) Remedies. Inasmuch as a breach, or failure to comply with, -------- Section 6.1 of this Agreement will cause serious and substantial damage to HON, - ----------- if Standard Pacific or any of its Affiliates should in any way breach, or fail to comply with, the terms of this Section 6.1, HON shall be entitled to an ----------- injunction restraining Standard Pacific and such Affiliates from any such breach or failure. All remedies expressly provided for herein are cumulative of any and all other remedies now existing at law or in equity. HON shall, in addition to the remedies herein provided, be entitled to avail itself of all such other remedies as may now or hereafter exist at law or in equity for compensation, and for the specific enforcement of the covenants contained herein. Resort to any remedy provided for hereunder or provided for by law shall not preclude or bar the concurrent or subsequent employment of any other appropriate remedy or remedies, or preclude the recovery by HON of monetary damages and compensation, including attorney's fees and costs. (e) Severability. Each subsection of this Section 6.1 constitutes a ------------ ----------- separate and distinct provision hereof. In the event that any provision of this Section 6.1 shall finally be judicially determined to be invalid, ineffective or - ----------- unenforceable, such determination shall apply only in the jurisdiction in which such adjudication is made and every other provision of this Section 6.1 shall ----------- remain in full force and effect. The invalid, ineffective or unenforceable provision shall, without further action by the parties, be automatically amended to effect the original purpose and intent of the invalid, ineffective or unenforceable provision; provided, however, that such amendment shall apply only ----------------- with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. 6.2 Books and Records. For a period of 10 years after the Closing, ----------------- each party shall retain and provide the other party with reasonable access during normal business hours to its books and records and the books and records of Panel Concepts (other than books and records protected by the attorney-client privilege) to the extent that they relate to the condition or operation of Panel Concepts and are requested by such party to prepare its Tax Returns, to respond to Third Party Claims (as hereinafter defined), or for any other legitimate purpose specified in writing. Each party shall have the right, at its own expense, to make copies of any such books and records. 6.3 Confidentiality. After the Closing, Standard Pacific and its --------------- Affiliates, directors, officers, employees, representatives, consultants and advisors shall hold in confidence and not use any confidential information which remains after the Closing in the possession of Standard Pacific or its Affiliates concerning Panel Concepts. Neither Standard Pacific nor its Affiliates shall, after the Closing, release or disclose any such information to any Person other than HON and their authorized representatives. Notwithstanding the foregoing, the confidentiality obligations of this Section 6.3 shall not ----------- apply to information: (i) which Standard Pacific or its Affiliates are compelled to disclose by judicial or administrative process, or, in the opinion of counsel, by other mandatory requirements of Law; (ii) which can be shown to have been generally available to the public other than as a result of a breach of this Section 6.3; or ----------- (iii) which can be shown to have been provided to Standard Pacific or its Affiliates by a third party who obtained such information other than from Panel Concepts or HON or other than as a result of a breach of this Section 6.3. ----------- 6.4 Employee Matters. ---------------- (a) Except for any persons identified on Schedule 6.4, HON agrees ------------ that the persons who are employed by Panel Concepts as of the Closing Date shall remain employees of Panel Concepts following the Closing Date (each such employee, "Affected Employee"); provided, however, the foregoing shall in ----------------- -------- ------- no way limit or restrict the rights of HON to terminate the employment of any Affected Employee, or to amend or terminate, or to cause the amendment or termination of, the terms and conditions of employment of any Affected Employee at any time after the Closing Date. (b) HON will cause Panel Concepts to give Affected Employees full credit for purposes of eligibility, vesting and determination of the level of benefits under any employee benefit plans or arrangements maintained by Panel Concepts for such Affected Employees' service with Panel Concepts to the same extent recognized by Panel Concepts immediately prior to the Closing Date. (c) HON will, or will cause Panel Concepts to, (i) waive all limitations as to preexisting conditions exclusions and waiting periods with respect to participation and coverage requirements applicable to the Affected Employees under any welfare benefit plans that such employees may be eligible to participate in after the Closing Date, other than limitations or waiting periods that are already in effect with respect to such employees and that have not been satisfied as of the Closing Date under any welfare plan maintained for the Affected Employees immediately prior to the Closing Date, and (ii) provide each Affected Employee with credit for any co-payments and deductibles paid prior to the Closing Date in satisfying any applicable deductible or out-of-pocket requirements under any welfare plans that such employees are eligible to participate in after the Closing Date. (d) Standard Pacific shall be responsible for satisfying any liabilities and paying any claims incurred prior to the Closing Date under any welfare benefit plan, policy or arrangement (including, without limitation, medical, hospital, dental, vision, accidental death and dismemberment, life, disability and other similar benefits) which, prior to the Closing Date, was maintained by Standard Pacific and provided welfare benefits to any Employee (including eligible spouses and dependents), subject to the applicable terms and conditions of such plans, policies and arrangements. HON shall be responsible for satisfying any liabilities and paying any claims incurred on or after the Closing Date of Affected Employees under and subject to the applicable terms and conditions of plans, programs and arrangements maintained by HON or Panel Concepts, as amended from time to time. Effective as of the Closing Date, Panel Concepts shall cease to be a participating employer under any employee benefit plan, program or arrangement maintained by Standard Pacific, except to the extent provided in the Transition Services Agreement, substantially in the form attached hereto as Schedule 2.4. For purposes of this Section, a claim shall be ------------ deemed to be incurred on the date on which occurs the event which is the immediate cause of such claim; provided, however, that (i) all claims relating to medical, hospital, dental or similar benefits shall be deemed to have been incurred when the service or supply is provided, and (ii) claims for disability benefits shall be deemed to have been incurred on the date that an authorized medical authority under the applicable plan certifies the existence of such disability (regardless of when such disability was incurred). 6.5 Trade Names. Following Closing, neither Standard Pacific nor ----------- any of its Affiliates will in any way use any of the trade or corporate names, trademarks or servicemarks "Panel Concepts," "TopLine," "BottomLine," or "TL2" or any trade or corporate names, trademarks or servicemarks which are confusingly similar to the words "Panel Concepts," TopLine," "BottomLine" or "TL2". To the extent that such names appear on (a) any plant, building or equipment, or (b) any stationery, business form, packaging, container, sign or other property (real or personal) transferred to Standard Pacific or any of its Affiliates or to any Transferee in the Pre-closing Transfer Transactions, Standard Pacific shall obliterate or shall cause such Affiliates or designees to obliterate such names from all such property and cease, in any event, using such names no later than 30 days after the Closing Date. 6.6 Product Warranty. The cost of warranty claims made following ---------------- the Closing Date for Products manufactured or shipped by Panel Concepts prior to the Closing Date (such costs to be deemed to consist of the direct cost of repairing or replacing, whichever is less, such Products) ("Warranty Claims") shall be counted against Standard Pacific's Threshold Amount (as defined in Section 10.4). When the aggregate amount of the Warranty Claims plus all Indemnifiable Losses (as defined in Section 10.1) indemnified against under Sections 10.2(a), (c), (d) and (e) exceed Standard Pacific's Threshold Amount, then Standard Pacific shall promptly reimburse HON for the amount of such claims, or any portion thereof, in excess of Standard Pacific's Threshold Amount. 6.7 Further Assurances. Each party shall from time to time after ------------------ the Closing Date, upon the request of the other party and without further consideration, execute, acknowledge and deliver in proper form any further instruments, and take such further actions as such party may reasonably require to carry out effectively the intent of this Agreement. 6.8 Cooperation in Third-Party Litigation. After the Closing, HON ------------------------------------- shall and shall cause Panel Concepts to provide such cooperation as Standard Pacific or its counsel may reasonably request in connection with: (i) pending or threatened proceedings set forth in Schedule 6.8; (ii) any proceedings relating ------------ to the Business which are hereafter pending or threatened and to which Standard Pacific or its Affiliates (other than Panel Concepts) is a party; and (iii) any proceedings for which HON is entitled to indemnification from Standard Pacific under Section 10.2 hereof. Such cooperation shall include, but not be limited ------------ to: (a) making available at the reasonable request of Standard Pacific or its counsel, and permitting Standard Pacific and its counsel to make and retain copies of, any and all documents in the possession of or otherwise available to either of Panel Concepts or HON; (b) making available upon the reasonable request of Standard Pacific or its counsel employees and other persons within the control of or available to Panel Concepts or HON to consult with and assist Standard Pacific and its counsel regarding any such proceedings and to prepare for and testify truthfully in connection with any such proceedings, including depositions, trials and arbitration proceedings; and (c) making available at the reasonable request of Standard Pacific or its counsel such other resources as may be within the control of or available to Panel Concepts or HON. Standard Pacific shall reimburse HON and Panel Concepts for any out-of-pocket expenses incurred by them at the request of Standard Pacific pursuant to this Section ------- 6.8. - --- 6.9 Omnific Chair Inventory. For a period of 120 days following the ----------------------- Closing Date, Panel Concepts will, for the benefit of Standard Pacific (i) continue to store the Omnific Chair Inventory in the location or locations where presently stored by Panel Concepts, (ii) continue to sell the Omnific Chair Inventory to its dealers and customers in a manner consistent with past practice and (iii) continue to perform warranty repairs with respect to the Omnific Chair Inventory in a manner consistent with past practice. Promptly upon Panel Concepts' receipt of any proceeds from the sale of Omnific Chair Inventory, HON will cause Panel Concepts to forward such amounts to Standard Pacific. Standard Pacific agrees to reimburse HON and Panel Concepts for their direct costs of performing warranty repairs on the Omnific Chair Inventory as provided in this Section 6.9. - ----------- ARTICLE 7 CONDITIONS PRECEDENT TO CLOSING ------------------------------- 7.1 Conditions Precedent to HON's Obligations. The obligation of ----------------------------------------- HON to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction of the following conditions, any of which, other than Sections 7.1(b) and 7.1(e), may be waived by HON: -------- ------ ------ (a) Accuracy of Representations and Warranties. The representations ------------------------------------------ and warranties made by Standard Pacific in this Agreement shall be true and correct in all material respects as of the Closing Date, except for representations and warranties made as of a specified date which shall be true and correct as of the specified date. (b) Litigation. No Order shall be in effect forbidding or enjoining ---------- the consummation of the transactions contemplated hereby and no Legal Proceeding brought by a third party shall be pending or threatened that is reasonably likely to result in any such Order. (c) Covenants. Standard Pacific shall have performed and complied in --------- all material respects with all covenants and agreements required by this Agreement to be performed by Standard Pacific prior to or at the Closing. (d) Deliveries. Standard Pacific shall have delivered to HON the ---------- documents required by Section 2.2. ----------- (e) Consents. Standard Pacific and Panel Concepts shall have -------- obtained all Consents from all Governmental Authorities and other Persons that they need to consummate the transactions contemplated by this Agreement, except that neither Standard Pacific nor Panel Concepts shall be required to obtain the Consent to the assignment of any contract, agreement or Permit listed on Schedule 7.1(e) and no such Consent shall be a condition to the consummation of - --------------- the transactions contemplated by this Agreement. (f) No Material Adverse Change. Since the date hereof, there shall -------------------------- have occurred no material adverse change, or discovery of a condition or occurrence of any event which might result in any such change, in the condition (financial or otherwise), assets or properties of Panel Concepts. 7.2 Conditions Precedent to Standard Pacific's Obligations. The ------------------------------------------------------ obligation of Standard Pacific to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction of the following conditions, any of which, other than Section 7.2(b), may be waived by Standard Pacific: -------------- (a) Accuracy of Representations and Warranties. The representations ------------------------------------------ and warranties made by HON in this Agreement shall be true and correct in all material respects as of the Closing Date, except for representations and warranties made as of a specified date which shall be true and correct as of the specified date. (b) Litigation. No Order shall be in effect forbidding or enjoining ---------- the consummation of the transactions contemplated hereby and no Legal Proceeding brought by a third party shall be pending or threatened which, if adversely determined, would result in any such Order. (c) Covenants. HON shall have performed and complied in all material --------- respects with all covenants and agreements required by this Agreement to be performed by HON prior to or at the Closing. (d) Deliveries. HON shall have delivered to Standard Pacific the ---------- payment and documents required by Section 2.3. ----------- (e) Consents. HON shall have obtained all Consents from all -------- Governmental Authorities and other Persons that it needs to consummate the transactions contemplated by this Agreement. ARTICLE 8 CERTAIN TAX MATTERS ------------------- 8.1 Tax Indemnification. (a) Standard Pacific shall indemnify HON ------------------- and its Affiliates (including Panel Concepts) and hold them harmless from and against: (i) any and all liability for Taxes (including without limitation any obligation to contribute to the payment of a Tax determined on a consolidated, combined, or unitary basis with respect to a group of corporations that includes or included Panel Concepts) of Panel Concepts for all Taxable periods ending on or before the Closing Date (the "Pre-closing Tax Period") and for the portion of ---------------------- any Taxes (including without limitation any obligation to contribute to the payment of a Tax determined on a consolidated, combined, or unitary basis with respect to a group of corporations that includes or included Panel Concepts) of Panel Concepts for any Straddle Period (as hereinafter defined) that is allocated (pursuant to Section 8.1(c)) to the Pre-closing Tax Period, including -------------- without limitation any and all liability for Taxes arising out of or relating to the transactions contemplated by Section 1.6 (such liabilities collectively, ----------- "Pre-closing Tax Liabilities"); (ii) any and all liability (as a result of - ---------------------------- Treasury Regulation (S) 1.1502-6(a) or otherwise) for Taxes of Standard Pacific or any other Person (other than Panel Concepts) which is or has ever been affiliated with Panel Concepts, or with whom Panel Concepts otherwise joins or has ever joined (or is or has ever been required to join) in filing any consolidated, combined or unitary Tax Return prior to the Closing, (iii) any and all liability for Conveyance Taxes; (iv) any and all liability for Taxes arising out of a breach or inaccuracy of any representation or warranty contained in Section 3.23(h), (i), (j), (m), (o), (p) and (q); (v) any and all liability for reasonable legal, accounting and appraisal fees and expenses with respect to any item described in clauses (i), (ii), (iii) or (iv) above; provided, however, -------- ------- that the amount of Standard Pacific's indemnity obligation for Taxes pursuant to this Section 8.1(a) shall be reduced to the extent that the aggregate reserves -------------- for Taxes (excluding deferred income Taxes) reflected on the Closing Balance Sheet exceeds the aggregate liability for Taxes for the periods covered by such reserves. Notwithstanding the foregoing, Standard Pacific shall not be required to indemnify or hold harmless HON or its Affiliates from or against any liability for Taxes attributable to a breach by HON of its obligations under this Agreement. (b) HON shall indemnify Standard Pacific and its Affiliates and hold them harmless from and against (i) any liability for Taxes of Panel Concepts for any Taxable period ending after the Closing Date (except with respect to a Straddle Period, in which case HON's indemnity will cover only Taxes (other than Conveyance Taxes) that are not Pre-closing Tax Liabilities, and (ii) any liability for Taxes, arising under Treas. Reg. (S) 1.1502-6 (or any similar provision of state, local or foreign law), of HON or any member (other than Panel Concepts) of the affiliated group that includes HON. Notwithstanding the foregoing, HON shall not be required to indemnify or hold harmless Standard Pacific or its Affiliates from or against any liability for Taxes attributable to a breach by Standard Pacific of its obligations under this Agreement. (c) In the case of any Taxable period that includes but does not end on the Closing Date (a "Straddle Period"), Taxes of Panel Concepts for the --------------- Straddle Period (i) shall be computed as if Panel Concepts had not been included in a consolidated, combined or unitary Tax Return with Standard Pacific or any other corporation, but rather, as if Panel Concepts had filed a separate Tax Return on a stand-alone basis, and otherwise consistent with past practice and (ii) shall be allocated to the Pre-closing Tax Period using an interim-closing- of-the-books method assuming that such Taxable period ended at the close of the Closing Date, except that (X) exemptions, allowances or deductions that are calculated on an annual basis (such as the deduction for depreciation) shall be apportioned on a per-diem basis and (Y) real property, personal property, intangibles and other similar Taxes shall be allocated in accordance with the principles of Section 164(d) of the Code. 8.2 Procedures Relating to Tax Indemnification. (a) If a claim for ------------------------------------------ Taxes, including, without limitation, notice of a pending or threatened audit, shall be made by any Taxing authority in writing (a "Tax Claim"), which, if --------- successful, might result in an indemnity payment pursuant to Section 8.1, the ----------- party seeking indemnification (the "Indemnified Tax Party") shall notify the --------------------- other party (the "Indemnifying Tax Party") in writing of the Tax Claim within ---------------------- thirty business days of receipt of such Tax Claim. If notice of a Tax Claim (a "Tax Notice") is not given to the Indemnifying Party within such thirty-day ---------- period or in detail sufficient to apprise the Indemnifying Tax Party of the nature of the Tax Claim, the Indemnifying Tax Party shall not be liable to the Indemnified Tax Party to the extent that the Indemnifying Tax Party's position would be actually and materially prejudiced as a result thereof. (b) (i) Standard Pacific shall have the sole right to represent the interests of Panel Concepts in the defense of any claim for Taxes relating to Taxable periods ending on or before the Closing Date, and to employ counsel of its choice at its expense. Notwithstanding the foregoing, Standard Pacific shall not be entitled to settle, either administratively or after the commencement of litigation, any claim for Taxes that would adversely affect the liability for Taxes of HON or Panel Concepts for any Taxable period ending after the Closing Date (including, but not limited to, the imposition of income Tax deficiencies, the reduction of asset basis or cost adjustments, the lengthening of any amortization or depreciation periods, the denial of amortization or depreciation deductions or the reduction of loss or credit carryforwards) without the prior written consent of HON. Such consent shall not be unreasonably withheld, and shall not be necessary to the extent that Standard Pacific has indemnified HON against the effects of any such settlement. (ii) HON shall have the sole right to represent the interests of Panel Concepts in the defense of any claim for Taxes relating to Taxable periods ending after the Closing Date. Notwithstanding the foregoing, Standard Pacific shall be entitled to participate at its expense in the defense of any claim for Taxes for a Taxable year or period ending after the Closing Date that may be subject to indemnification by Standard Pacific pursuant to Section 8.1(a) and, with the written consent of HON, and at -------------- Standard Pacific's sole expense, may assume the entire defense of such Tax claim, subject to the second and third sentences of Section 8.2(b)(i). ----------------- Neither HON nor Panel Concepts may agree to settle any Tax claim for the portion of the Taxable year or period ending on the Closing Date that may be the subject of indemnification by Standard Pacific under Section 8.1(a) -------------- without the prior written consent of Standard Pacific, which consent shall not be unreasonably withheld. (c) After the Closing Date, Standard Pacific and HON shall: (i) assist (and cause their respective Affiliates to assist) the other party in preparing any Tax Returns that such other party is responsible for preparing and filing in accordance with this Article 8; --------- (ii) cooperate fully in preparing for any audits of, or disputes with Taxing authorities regarding, any Tax Returns of Panel Concepts; (iii) make available to the other and to any Taxing authority as reasonably requested all information, records and documents relating to Taxes of Panel Concepts; (iv) provide timely notice to the other in writing of any pending or threatened Tax audits or assessments of Panel Concepts for Taxable periods for which the other may have a liability under this Article ------- 8; and - (v) furnish the other with copies of all correspondence received from any Taxing authority in connection with any Tax audit or information request with respect to any such Taxable period. (d) Within 60 days following the Closing Date, Standard Pacific shall deliver or cause to be delivered to HON copies of all Tax Returns of Panel Concepts for any Taxable year or other period commencing on or after December 4, 1991 and all schedules, work papers and other documents (including without limitation appraisals and other background information) which are in the possession of Standard Pacific and which relate to such Tax Returns. 8.3 Tax Dispute Resolution Mechanism. Wherever in this Article 8 it -------------------------------- --------- is provided that a dispute shall be resolved pursuant to the "Tax Dispute Resolution Mechanism," such dispute shall be resolved as follows: The parties shall submit the dispute to a jointly selected nationally recognized accounting firm (the "Settlement Accountants") for resolution, which resolution shall be ---------------------- final, conclusive and binding on the parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Settlement Accountants in resolving a dispute shall be borne equally by Standard Pacific and HON, other than fees and expenses relating to a dispute as to the amount of Taxes owed by either of the parties with respect to a Tax Return for a Straddle Period, in which case such fees and expenses shall be paid by HON and Standard Pacific in proportion to each party's respective liability for Taxes as determined by the Settlement Accountants. 8.4 Survival of Tax Provisions. The obligations of the parties set -------------------------- forth in this Article 8 shall be unconditional and absolute and shall remain in --------- effect until the date 90 days after the expiration of the relevant statute of limitations (and any waiver or extension thereof) applicable to the Taxes at issue. 8.5 Conveyance Taxes. Notwithstanding any other provision of this ---------------- Agreement to the contrary, Standard Pacific shall be liable for, and shall timely pay, any and all gains, transfer, sales, use, bulk sales, recording, registration, documentary, stamp, and other Taxes that may result from, or be incurred in connection with, the Transactions contemplated by this Agreement ("Conveyance Taxes"). Standard Pacific shall, at its own expense, properly ---------------- complete, sign, and timely file any and all required Tax Returns with respect to such Taxes and, if required by applicable Law, HON will join in the execution of any such Tax Returns. 8.6 Return Filings, Refunds and Credits. (a) Standard Pacific shall ----------------------------------- prepare or cause to be prepared and file or cause to be filed on a timely basis all Tax Returns with respect to Panel Concepts for Taxable periods ending on or prior to the Closing Date. HON shall not file any Tax Returns with respect to Panel Concepts for Taxable periods ending on or prior to the Closing Date without the prior written consent of Standard Pacific. (b) HON shall prepare or cause to be prepared and shall file or cause to be filed on a timely basis all other Tax Returns with respect to Panel Concepts. In connection therewith, Standard Pacific shall be responsible for and shall pay any Taxes for which Standard Pacific has agreed to indemnify HON pursuant to Section 8.1(a). Before filing any Tax Return with respect to any -------------- Straddle Period, HON shall provide Standard Pacific with a copy of such Tax Return at least thirty days prior to the last date for timely filing such Tax Return (giving effect to any valid extensions thereof), accompanied by a statement calculating in reasonable detail Standard Pacific's indemnification obligation pursuant to Section 8.1(a). If for any reason -------------- Standard Pacific does not agree with HON's calculation of its indemnification obligation, Standard Pacific shall notify HON of its disagreement within ten days of receiving a copy of the Tax Return and HON's calculation, and such dispute shall be resolved pursuant to the Tax Dispute Resolution Mechanism. If Standard Pacific agrees with HON's calculation of its indemnification obligation, Standard Pacific shall pay to HON the amount of Standard Pacific's indemnification obligation at least five business days prior to the last date for timely filing such Tax Return (including any valid extensions thereof). (c) Standard Pacific, Panel Concepts and HON shall reasonably cooperate, and shall cause their respective Affiliates, officers, employees, agents, auditors and representatives reasonably to cooperate, in preparing and filing all Tax Returns (including amended Tax Returns and claims for refund), including maintaining and making available to each other all records necessary in connection with Taxes and in resolving all disputes and audits relating to Taxes with respect to all Taxable periods. (d) Any refunds or credits of Taxes of Panel Concepts plus any interest received with respect thereto from an applicable Taxing authority for any Taxable period ending on or before the Closing Date (including, without limitation, refunds or credits arising by reason of amended Tax Returns filed after the Closing Date) shall, except as otherwise provided in Section 8.10, be ------------ for the account of Standard Pacific and shall be paid by HON to Standard Pacific within 30 days after HON receives such refund or after the relevant Tax Return is filed in which the credit is applied against HON's, Panel Concepts' or any of their Affiliates' or any of their successors' liability for Taxes. Any refunds or credits of Taxes of Panel Concepts plus any interest received with respect thereto from an applicable Taxing authority for any Taxable period beginning after the Closing Date shall be for the account of HON. Any refunds or credits of Taxes of Panel Concepts for any Straddle Period shall be apportioned between Standard Pacific and HON in the same manner as the liability for such Taxes is apportioned pursuant to Section 8.1(c). -------------- (e) At Standard Pacific's request and at its sole cost and expense, HON shall cause Panel Concepts and any of its successors to file for and obtain any refunds or credits to which Standard Pacific is entitled under this Section ------- 8.6. In connection therewith, (i) Standard Pacific shall control the prosecution - --- of any such refund claim, at the sole cost and expense of Standard Pacific, and, where deemed appropriate by Standard Pacific, shall cause Panel Concepts and any of its successors to authorize by appropriate powers of attorney such persons as Standard Pacific shall designate to represent Panel Concepts or any of its successors with respect to such refund claim, and (ii) HON shall cause Panel Concepts and any of its successors to forward to Standard Pacific any such refund within 30 days after the refund is received (or reimburse Standard Pacific for any such credit within 30 days after the relevant Tax Return is filed in which the credit is actually applied against HON's, Panel Concepts' or any of their Affiliates or any of their successors' liability for Taxes). 8.7 Exclusivity. Article 8 shall govern exclusively the procedures ----------- --------- for all indemnification claims with respect to Taxes. 8.8 Tax Sharing Agreements. Any and all existing agreements or ---------------------- practices relating to the allocation or sharing of Taxes (the "Tax Sharing ----------- Agreements") between Panel Concepts and any member of an affiliated group, - ---------- within the meaning of Section 1504(a) of the Code, of which Panel Concepts is or was a member (the "Panel Concepts Affiliated Group") shall be terminated as of ------------------------------- the Closing Date without payment by or other obligation of Panel Concepts. After the Closing Date, neither Panel Concepts nor any member of the Panel Concepts Affiliated Group shall have any further rights or obligations under any such Tax Sharing Agreement. 8.9 Adjustment to Purchase Price. Any payment by HON or ---------------------------- Standard Pacific under this Article 8 will be an adjustment to the Purchase --------- Price unless a determination (as defined in Section 1313(a) of the Code) with respect to the indemnified party causes any such payment not to constitute an adjustment to the Purchase Price for United States federal income Tax purposes. 8.10 Carryforwards of Losses. HON shall be free to cause Panel ----------------------- Concepts to elect, where permitted by applicable law, to carry forward any net operating loss, net capital loss, charitable contribution or other item arising after the Closing Date, including, without limitation, any such loss or other item that would, absent such election, be carried back to a Taxable period ending on or before the Closing Date. Notwithstanding anything to the contrary in Section 8.6, HON shall be entitled to any refund of income Taxes paid before ----------- the Closing Date, to the extent that such refund is attributable to carryback of losses or deductions of Panel Concepts that accrue after the Closing Date. 8.11 Section 338(h)(10) Election. Upon the request of HON, Standard --------------------------- Pacific shall take, on a timely basis, whatever action is necessary or appropriate to join with HON in making an election under Section 338(h)(10) of the Code, and comparable provisions of state or local income or franchise Tax laws, with respect to the purchase and sale of Shares provided for herein. If HON decides to make a Section 338(h)(10) election, HON shall prepare and file Internal Revenue Service Form 8023-A and such other forms or schedules as may be necessary or appropriate to make such election and shall submit them to Standard Pacific for review and execution not later than 60 days prior to the due date for filing, and HON shall perform all such other acts as are necessary to make or perfect such election. Standard Pacific agrees that it will cooperate with HON and any appraiser retained by HON in obtaining an appraisal of the value of the assets of Panel Concepts. The allocation of the Modified Adjusted Deemed Sales Price, as defined in Treasury Regulation (S) 1.338(h)(10)-1(f), among the assets of Panel Concepts shall be reasonable and shall be in accordance with Section 338(h)(10) and the Treasury Regulations promulgated thereunder. Each of Standard Pacific and HON shall bear its own cost of any election made by it under Section 338(h)(10) of the Code. ARTICLE 9 TERMINATION PRIOR TO CLOSING DATE --------------------------------- 9.1 Termination. This Agreement may be terminated at any time prior ----------- to the Closing: (a) by the mutual written consent of HON and Standard Pacific; (b) by HON, (i) if there has been a violation or breach by Standard Pacific of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of HON at the Closing and such violation or breach has not been waived by HON or, in the case of a covenant breach, cured by Standard Pacific within ten days after written notice thereof from HON; (c) by the Standard Pacific, if there has been a violation or breach by HON of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of Standard Pacific at the Closing and such violation or breach has not been waived by Standard Pacific or, with respect to a covenant breach, cured by HON within ten days after written notice thereof by Standard Pacific (provided that the failure to deliver the Purchase Price at the Closing as required hereunder shall not be subject to cure hereunder unless otherwise agreed to in writing by Standard Pacific); or (d) by either HON or Standard Pacific if the sale of the Shares has not been consummated by December 15, 1997 (the "Termination Date"); ---------------- provided that neither HON nor Standard Pacific shall be entitled to terminate this Agreement pursuant to this Section 9.1(d) if such party's -------------- breach of this Agreement has prevented the consummation of the transactions contemplated hereby. 9.2 Effect of Termination. If this Agreement terminates pursuant to --------------------- Section 9.1, neither HON nor Standard Pacific shall have any liability or - ----------- obligation to the other party hereunder, other than the obligations set forth in Section 11.7 and any liability arising from any breach of this Agreement prior - ------------ to the time of termination. ARTICLE 10 SURVIVAL OF REPRESENTATIONS --------------------------- AND WARRANTIES; INDEMNIFICATION ------------------------------- 10.1 Survival of Representations and Warranties. The representations ------------------------------------------ and warranties of Standard Pacific and HON made in Articles 3 and 4 hereof shall ---------------- survive the Closing for a period of two years after the Closing Date; provided, -------- however, that the representations and warranties contained in Sections 3.4 and - ------- ---------------- 3.5 shall survive indefinitely, and the representations and warranties contained - --- in Sections 3.22 and 3.23 shall survive until the date that is 90 days after the ---------------------- expiration of the relevant statute of limitations (and any waiver or extension thereof) applicable to the matter at issue. Upon the expiration of a representation or warranty pursuant to this Section 10.1, unless written notice ------------ of a claim based on such representation or warranty shall have been delivered to the Indemnitor pursuant to Section 10.4 prior to the expiration of such ------------ representation or warranty, such representation or warranty shall be deemed to be of no further force or effect, as if never made, and no action may be brought based on the same, whether for breach of contract, tort or under any other legal theory. The term "Indemnifiable Losses" means any and all loss, liability, -------------------- damage, deficiency, cost or expense (including without limitation reasonable attorneys' fees, costs and expenses), including, without limitation, Environmental Damages incurred by a Claiming Party (as hereinafter defined), including without limitation any of the foregoing relating to, resulting from or arising out of any action, suit, administrative proceeding, investigation, audit or other proceeding brought by any Person or Governmental Authority and any settlement or compromise thereof, but excluding consequential damages except to the extent required to be paid to a Third Party in connection with a Third Party Claim (as hereinafter defined). Each party agrees that it will not seek punitive damages as to any matter under, relating to or rising out of the transactions contemplated hereby. 10.2 Indemnification by Standard Pacific. Subject to the provisions ----------------------------------- of this Article 10, from and after the Closing, Standard Pacific shall indemnify ---------- and hold harmless HON, Panel Concepts and their Affiliates, and their respective directors, officers, employees, agents and representatives (each a "HON --- Indemnified Party"), from and against any and all Indemnifiable Losses that may - ----------------- be incurred by any HON Indemnified Party relating to, resulting from or arising out of: (a) the breach of or any inaccuracy in any of the representations and warranties of Standard Pacific contained in this Agreement (other than any representation and warranty contained in Section 3.23, which shall be ------------ dealt with to the extent that it relates to Taxes in the manner provided for in Article 8), provided, however, that, for purposes of this clause --------- --------- ------- (a), as to any matter for which a specific reserve was accrued on the Closing Balance Sheet, Indemnifiable Losses shall only include those Indemnifiable Losses that are in excess of such reserve; (b) the breach or nonperformance of any covenant or agreement of Standard Pacific contained in this Agreement (other than any covenant or agreement contained in Article 8 of this Agreement, which shall be dealt --------- with in the manner provided for in Article 8); --------- (c) operation of the Business of Panel Concepts (or any of its predecessors-in-interest) prior to the Closing Date, or the ownership, possession, use, operation, manufacture, sale or other disposition prior to the Closing Date of any Products, assets, properties, rights or interests associated, at any time prior to the Closing Date, with Panel Concepts' business, including without limitation, any Indemnifiable Loss relating to product warranty claims, product liability claims, employee claims and unpaid employee benefits, claims relating to intellectual property rights, and liabilities relating to the Pre-Closing Sale Property, provided, -------- however, that, for purposes of this clause (c), as to any matter for which ------- a specific reserve was accrued on the Closing Balance Sheet, Indemnifiable Losses shall only include those Indemnifiable Losses that are in excess of such reserve; (d) any Environmental Damages or any violation of any Environmental Law relating to, resulting from, or arising out of the operation of the Business or any of Panel Concepts' current or former facilities or operations (whether owned or leased) prior to the Closing Date (whether known or unknown on the Closing Date); (e) any violation of the Worker Adjustment and Retraining Notification Act or otherwise arising under said Act and resulting from the actions of Standard Pacific or Panel Concepts before the Closing; and (f) the claims listed on Schedules 3.15 and 6.8, provided, however, --------- ------- that, for purposes of this clause (f), as to any matter for which a specific reserve was accrued on the Closing Balance Sheet, Indemnifiable Losses shall only include those Indemnifiable Losses that are in excess of such reserve. 10.3 Indemnification by HON. Subject to the provisions of this ---------------------- Article 10, from and after the Closing, HON shall indemnify and hold harmless - ---------- Standard Pacific, its Affiliates and each of their directors, officers, employees, agents and representatives (each a "Standard Pacific Indemnified ---------------------------- Party"), from and against any and all Indemnifiable Losses relating to, - ----- resulting from or arising out of: (a) the breach of or any inaccuracy in any of the representations and warranties of HON contained in this Agreement; or (b) the breach or non-performance of any covenant or agreement of HON contained in this Agreement (other than any covenant or agreement contained in Article 8 of this Agreement, which shall be dealt with in the --------- manner provided for in Article 8); or --------- (c) any violation of the Worker Adjustment and Retraining Notification Act or otherwise arising under said Act and resulting from the actions of HON or Panel Concepts following the Closing. 10.4 Limits on Indemnification. (a) Notwithstanding any provision ------------------------- to the contrary contained in this Agreement, Standard Pacific's indemnification obligation in favor of HON Indemnified Parties contained in Sections 10.2(a), ----------------- (c), (d) and (e) shall not be effective until the aggregate dollar amount of all - -------- --- Indemnifiable Losses indemnified against under such Sections plus the Warranty Claims under Section 6.6 exceeds $400,000 (the "Standard Pacific's Threshold ----------- ---------------------------- Amount"), in which event HON Indemnified Parties may only claim indemnification - ------ for the amounts of such claims or, any portion thereof, in excess of Standard Pacific's Threshold Amount; provided, however, that for purposes of determining -------- ------- whether the amount of the Indemnifiable Losses under Sections 10.2(a), (c), (d) -------------------------- and (e) plus the Warranty Claims under Section 6.6 exceed $400,000 there shall --- ----------- be included in such amount all Indemnifiable Losses which would be recoverable under Sections 10.2(a), (c), (d) and (e) but for the materiality standards set -------------------------- --- forth in any Section contained in Article 3 hereof. --------- (b) Notwithstanding any provision to the contrary contained in this Agreement, Standard Pacific's indemnification obligation in favor of HON Indemnified Parties contained in Sections 10.2(a), (c) and (e) shall not exceed --------------------- --- 100% of the Purchase Price (the "Standard Pacific's Cap Amount"). ----------------------------- (c) Notwithstanding any provision to the contrary contained in this Agreement, Standard Pacific's indemnification obligation in favor of HON Indemnified Parties contained in Sections 10.2(c) and (e) shall survive for five ---------------- --- years after the Closing Date, at which time such indemnification obligation shall be of no further force or effect and no action may be brought under such indemnification obligation. (d) Notwithstanding any provision to the contrary contained in this Agreement, HON's indemnification obligation in favor of Standard Pacific Indemnified Parties contained in Sections 10.3(a) and (c): (i) shall not be ---------------- --- effective until the aggregate dollar amount of all Indemnifiable Losses indemnified against under such Sections exceeds $400,000 (the "HON's Threshold --------------- Amount"), in which event Standard Pacific Indemnified Parties may only claim - ------ indemnification for the amounts of such claims or any portion thereof, in excess of HON's Threshold Amount and (ii) shall not exceed 100% of the Purchase Price (the "HON's Cap Amount"). ---------------- (e) The amount of any Indemnifiable Loss suffered by a HON Indemnified Party or a Standard Pacific Indemnified Party shall be reduced by any third party insurance or other indemnification benefits which such party or its representative receives in respect of or as a result of such Indemnifiable Loss. If any Indemnifiable Loss for which indemnification is provided hereunder is subsequently reduced by any third party insurance payment or other indemnification recovery from a third party, the amount of the reduction shall be remitted to the HON Indemnified Party or the Standard Pacific Indemnified Party as appropriate. 10.5 Indemnification Procedures. -------------------------- (a) Notice. If any Legal Proceeding shall be threatened or ------ instituted or any claim or demand shall be asserted against any HON Indemnified Party or Standard Pacific Indemnified Party in respect of which indemnification may be sought under the provisions of this Agreement, the party seeking indemnification (the "Claiming Party") shall promptly cause written notice of -------------- the assertion of any such claim, demand or proceeding of which it has actual knowledge to be forwarded to the party from whom it is claiming indemnification (the "Indemnitor"), together with a copy of such claim, process or other legal ---------- pleading. Such notice shall contain a reference to the provisions herein or of such other agreement, instrument or certificate delivered pursuant hereto, in respect of which such claim is being made, and shall specify, in reasonable detail, the estimated amount of such Indemnifiable Loss if reasonably determinable at such time. The Claiming Party's failure to give the Indemnitor prompt notice shall not affect the right of Claiming Party to receive indemnification from the Indemnitor except to the extent that the Claiming Party's failure has materially prejudiced the Indemnitor's ability to defend the claim, demand or proceeding. (b) Third Party Claims. (i) If the Claiming Party seeks ------------------ indemnification from the Indemnitor as a result of a claim or demand being made by a third party (a "Third Party Claim"), the Indemnitor shall have the right to ----------------- assume the control of the defense and settlement of such Third Party Claim, including, at its own expense, employment by it of counsel of its own choosing so long as the Indemnitor has acknowledged in writing its obligations to indemnify the Claiming Party. If the Indemnitor elects to assume the defense of any Third Party Claim, the Indemnitor shall not be liable to the Claiming Party for any fees of other counsel or any other expenses in each case subsequently incurred by such Claiming Party in connection with the defense thereof, except as provided below. If the Indemnitor elects not to exercise its rights to assume the settlement or defense of the Third Party Claim, the Claiming Party may, but shall have no obligation to, defend against such Third Party Claim or legal proceeding in such manner as it may deem appropriate at the expense of the Indemnitor; provided, however, that the Claiming Party shall not settle or compromise such claim without the Indemnitor's Consent. If the Indemnitor assumes such defense, the Claiming Party will have the right to participate in the defense thereof and to employ counsel, separate from the counsel employed by the Indemnitor at its own expense, provided, however, that if the Claiming Party --------- ------- is, in the reasonable judgment of its counsel, entitled to assert a defense which conflicts with a defense of the Indemnitor or which the Indemnitor is not entitled to assert for any reason, the Indemnitor shall be liable for the fees and expenses of counsel employed by the Claiming Party for such limited purpose. The Indemnitor will be liable for the fees and expenses of counsel employed by the Claiming Party for any period (following notice of the claim from the Claiming Party pursuant to Section 10.5(b)) during which the Indemnitor has not --------------- assumed the defense of a Third Party Claim whether or not the Indemnitor ultimately chooses to defend any such Third Party Claim. In connection with any Third Party Claim, the defense of which has been assumed by the Indemnitor hereby, the Indemnitor agrees to keep the Indemnitee reasonably informed of the status thereof at all stages including providing to the Indemnitee copies of all pleadings and other material papers and correspondence in connection with such Third Party Claim. (ii) Notwithstanding the preceding paragraph, Standard Pacific shall assume immediately prior to the Closing Date the control of the defense of all Legal Proceedings listed on Schedule 3.15 of the Disclosure Schedule, at its ------------- own expense and with counsel of its own choosing. (c) Investigation or Remediation of Company Property. With respect ------------------------------------------------ to any environmental investigation or remediation matter at the real property currently owned or operated by Panel Concepts as of the Closing Date (the "Company Property") for which Standard Pacific is indemnifying the HON Indemnified Parties, the HON Indemnified Parties shall have the right to control such investigation and/or remediation; provided, however, that the HON Indemnified Parties shall not be entitled to any indemnification under Section ------- 10.2 for any investigation or remediation activities unless Standard Pacific - ---- shall have been notified of, and approved, such activities, such approval not to be unreasonably withheld or delayed. Standard Pacific's indemnity obligation under Section 10.2 does not cover the costs of any investigation or remediation ------------ that exceeds the minimum level of investigation or remediation required for the current use of the Company Property by any regulatory agency asserting jurisdiction, as long as such remediation does not result in a material interference with HON's manufacturing operations on the Company Property, in which case Standard Pacific's indemnification obligation shall include costs of remediating Company Property using the most cost effective alternative permitted by the regulatory agency that does not result in such an interference. Standard Pacific shall have the right, at its sole expense, to observe and discuss with the HON Indemnified Parties any such activities with respect to the Company Property, including, without limitation, participation, at Standard Pacific's sole expense, in any meetings with regulatory authorities with respect to the investigation or remediation. The HON Indemnified Parties shall promptly provide copies to Standard Pacific of all notices, correspondence, draft reports and final reports related to such matter. With respect to any environmental investigation or remediation matter at real property previously owned or operated by Panel Concepts or its predecessors in interest for which Standard Pacific is indemnifying the HON Indemnified Parties, Standard Pacific shall have the right to control such investigation and/or remediation. 10.6 Indemnification for Taxes. Notwithstanding anything in this ------------------------- Article 10 to the contrary, any Indemnifiable Losses or Third Party Claims based - ---------- on, attributable to or resulting from any misrepresentation or the breach or inaccuracy of any representation or warranty made by Standard Pacific in Section ------- 3.23, or the failure to comply with any covenant or agreement on the part of the - ---- parties hereto contained in Article 8 will be governed exclusively by Article 8. --------- --------- Claims for indemnification arising under or with respect to Section 3.23 or ------------ Article 8 may not be made unless notice of such claims has been given prior to - --------- the date that is 90 days after the expiration of the relevant statute of limitations (and any waiver or extension thereof) applicable to the Taxes at issue. 10.7 Adjustment to Purchase Price. Any payments made pursuant to ---------------------------- Sections 10.2 and 10.3 will be treated by HON and Standard Pacific as an - ------------- ---- adjustment to the Purchase Price unless a determination (as defined in Section 1313(a) of the Code) with respect to the indemnified party causes any such payment not to constitute an adjustment to the Purchase Price for United States federal income tax purposes. 10.8 Subrogation. If the Indemnitor makes any payment under this ----------- Article 10 in respect of any Indemnifiable Losses, the Indemnitor shall be - ---------- subrogated, to the extent of such payment, to the rights of the Claiming Party against any insurer or third party with respect to such Losses; provided, -------- however, that the Indemnitor shall not have any rights of subrogation with - ------- respect to the other party hereto or any of its Affiliates or any of its or its Affiliates' officers, directors, agents or employees. 10.9 Remedies Exclusive. The remedies provided in this Article 10 ------------------ ---------- shall be the exclusive remedy for monetary damages (whether at law or in equity). Without limiting the foregoing, neither Standard Pacific nor any of its officers, employees, agents, stockholders, Affiliates, consultants, investment bankers, legal advisers or representatives shall have any liability or obligation to HON in respect of any statement, representation, warranty or assurance of any kind made by Standard Pacific, its representatives or any other person, including but not limited to, any statements made during any presentation by any employee or representative of Standard Pacific or Panel Concepts, except as otherwise provided in this Article 10. ---------- ARTICLE 11 MISCELLANEOUS ------------- 11.1 Severability. If any provision of this Agreement shall be held ------------ invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement will not be affected or impaired thereby, and the parties shall endeavor to carry out the intent of such provision to the maximum extent permitted. 11.2 Successors and Assigns. The terms and conditions of this ---------------------- Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties; provided, however, that this Agreement may not be -------- ------- assigned by any party without the express written consent of the other party. 11.3 Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall for all purposes be deemed to be an original and all of which when taken together shall constitute the same instrument. 11.4 Headings. The headings of the Sections are inserted for -------- convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 11.5 Waiver. Any of the terms or conditions of this Agreement may be ------ waived in writing at any time by the party which is entitled to the benefits thereof. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of such provision at any time in the future or a waiver of any other provision hereof. 11.6 No Third-party Beneficiaries. Nothing in this Agreement shall ---------------------------- create any third-party beneficiary rights in any Person other than the Beneficiaries. 11.7 Expenses. Except as otherwise expressly provided for herein or -------- in any agreement entered into on the date hereof, Standard Pacific and HON shall each pay all costs and expenses incurred by it or on its behalf in connection with this Agreement and the transactions contemplated hereby, including fees and expenses of its own financial consultants, accountants and legal counsel. 11.8 Notices. Any notice, request, instruction, consent or other ------- document to be given hereunder by either party hereto to the other party shall be in writing and delivered personally, by telecopy or sent by registered or certified mail, postage prepaid, as follows: If to HON: David Stuebe HON Industries, Inc. 414 East Third Street P.O. Box 1009 Muscatine, Iowa 52761-7109 Fax Number: (319) 264-7655 With a copy to: Elizabeth C. Kitslaar Jones, Day, Reavis & Pogue 77 West Wacker Chicago, Illinois 60601-1692 Fax Number: (312) 782-8585 If to Standard Pacific: Arthur E. Svendsen Standard Pacific Corp. 1565 West MacArthur Blvd. Costa Mesa, CA 92626 With a copy to: Clay A. Halvorsen Gibson Dunn & Crutcher, LLP 2029 Century Park East, Suite 4000 Los Angeles, CA 90067 Fax Number: (310) 551-8741 or at such other address for a party as shall be specified in writing by that party. Any notice which is delivered personally or by telecopy to the addresses provided herein shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party. Any notice which is addressed and mailed in the manner herein provided shall be deemed given to the Person to which it is addressed when received. 11.9 Governing Law; Interpretation. This Agreement shall be construed ----------------------------- in accordance with and governed by the laws of the State of California applicable to agreements made and to be performed wholly within the State of California without regard to conflicts of laws provisions thereof. Unless specifically stated, otherwise, references to Articles, Sections and Schedules refer to Articles, Sections and Schedules in this Agreement. 11.10 Exclusive Jurisdiction and Consent to Service of Process. -------------------------------------------------------- Standard Pacific and HON each agree that any Legal Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be instituted in a federal court located in the City of Santa Ana, State of California which shall be the exclusive venue of said legal proceedings. Standard Pacific and HON each waives any objection which such party may now or hereafter have to the laying of venue of any such Legal Proceeding, and irrevocably submits to the jurisdiction of any such court in any such action, suit or proceeding. Any and all service of process and any other notice in any such Legal Proceeding shall be effective against such party when transmitted in accordance with Section 11.8. Nothing contained herein shall be deemed to affect ------------ the right of any party to serve process in any manner permitted by Law. 11.11 Entire Agreement; Amendment. This Agreement including all --------------------------- Schedules and the other written agreements, if any, entered into on the date hereof constitute the sole understanding of the parties with respect to the matters contemplated hereby and thereby and supersede and render null and void all prior agreements and understandings between the parties with respect to such matters. No amendment, modification or alteration of the terms or provisions of this Agreement, including all Schedules, shall be binding unless the same shall be in writing and duly executed by the party against whom such would apply. 11.12 Definitions. For purposes hereof, the following terms, when ----------- used herein with initial capital letters shall have the respective meanings set forth herein: "Affiliates" of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a Governmental Authority or any department, agency or political subdivision thereof. 11.13 Representations and Warranties. The disclosure of any ------------------------------ information on any Schedule to this Agreement shall be deemed to constitute the disclosure of such information on all other Schedules to this Agreement applicable to such information. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. STANDARD PACIFIC CORP. By: _____________________________ Title: __________________________ HON INDUSTRIES INC. By: _____________________________ Title: _____________________________________________________________ EX-22.1 5 SUBSIDIARIES OF THE COMPANY EXHIBIT 22.1 SUBSIDIARIES OF REGISTRANT 1. Saddleback Inns of America, a California corporation. 2. Standard Pacific Savings, F.A., a Federally chartered stock savings and loan association. 3. Standard Pacific Financing, Inc., a California corporation. 4. SPS Affiliates, Inc., a subsidiary of Standard Pacific Savings, F.A. and a California corporation. 5. Standard Pacific Financing, L.P., a Delaware limited partnership in which the registrant owns a 99% interest in all profits, losses, credits and distributions. 6. Standard Pacific of Texas, Inc., a Delaware corporation. 7. StanPac Corp., a Delaware corporation. 8. Standard Pacific of Fullerton, Inc., a Nevada corporation. 9. Standard Pacific of Orange County, Inc., a Nevada corporation. 10. Family Lending Services, Inc., a subsidiary of Standard Pacific Savings, F.A. and a Delaware corporation. 11. Eagle Ridge Development Company LLC, a California limited liability company in which the registrant has a 50% ownership interest. 12. Parkridge Partners, a California general partnership in which the registrant has a 50% ownership interest. 13. Pacific Ridge Partners, a California general partnership in which the registrant has a 50% ownership interest. 14. StanPac Development Company, LLC, a Delaware limited liability company in which the registrant has a 50% ownership interest. 15. Drees-Standard Pacific No. I, L.C., a Texas limited liability company in which the registrant has a 50% ownership interest. Neither the subsidiaries nor the partnerships in which the registrant has an interest have done business under names other than their own, wih the exception of the following: 1. Standard Pacific of Orange County, a division of Standard Pacific Corp. 2. Standard Pacific of San Diego, a division of Standard Pacific Corp. 3. Standard Pacific of Ventura, a division of Standard Pacific Corp. 4. Standard Pacific of Northern California, a division of Standard Pacific Corp. 5. Standard Pacific of Dallas, a division of Standard Pacific of Texas, Inc. 6. Standard Pacific of Houston, a division of Standard Pacific of Texas, Inc. 7. Standard of Texas, a division of Standard Pacific of Texas, Inc. 8. Standard Pacific Homes. 9. Standard Pacific. EX-23.1 6 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Standard Pacific Corp.: As independent public accountants, we hereby consent to the incorporation by reference of our report dated January 23, 1998, included in this Form 10-K into Standard Pacific Corp.'s previously filed Form S-8 Registration Statement File No. 33-44954 and Form S-8 Registration Statement File No. 333-34073. ARTHUR ANDERSEN LLP Orange County, California January 23, 1998 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 12-MOS DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 DEC-31-1997 DEC-31-1996 8,381 5,252 0 5,329 23,781 12,389 0 0 451,848 372,645 (0) (0) 6,085 5,061 3,570 3,320 547,665 449,114 (0) (0) 178,131 100,000 0 0 0 0 296 296 283,482 260,093 547,665 449,114 584,571 399,863 584,571 399,863 490,876 348,066 543,262 385,417 (931) (936) 0 0 4,981 7,142 41,046 12,948 17,070 5,197 23,976 7,751 3,350 642 0 0 0 0 27,326 8,393 0.93 0.28 0.92 0.28 Amounts for current assets and current liabilities are not shown, since the balance sheet presented is unclassified.
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